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Not to be taken from this room

Every person who maliciously
cuts, defaces, breaks or injures
any book, map, chart, picture,
engraving, statue, coin, model,
apparatus, or other work of lit-
erature, art, mechanics or ob-
ject of curiosity, deposited in
any public library, gallery,
museum or collection is guilty
of a misdemeanor.

Penal Code of California
1915, Section 623

FORBES
October 11, 1982

AJRS AND FIFTY CENTS

THE WORLD
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BURUNGAME £
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David Mahoney, Chairman of Avis.

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ir crisp, clear copies,
we tied.

ctually, we're being modest,
ihe truth is we won. Because 74% of con-
fers interviewed by Nationwide Consumer
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o, while the Xerox and IBM certainly do
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olta EP 300 when it comes to copy quality.

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If you'd like the name of your nearest
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F-01

71

Title.

Company.
Address—

City

Zip

.State.

.Telephone.

Mail to Minolta Corporation. Business Equipment Division. 101 Williams Drive.
Ramsey Nl 07446

Forbes

October 11, 1982
Volume 130,
Number 8

150 Cover Story
The game is over.

43 HAT No longer fust
throwing money at it

73 The Up & Comers.

Just hang in there, buddy,
because those who get' im-
patient trill sell out cheap "

39 Aerospace:

The Big Dogfight

And somebody is going to go down in smoke.

40 Cable Television:

The Strong Get Stronger

CBS Cable may be only the first to go; the
shakeout is closer than most realize.

41 Companies:
Pittston Co.

In the pits with "Mr. Coal."

42 Monaco:

Pavane For A Dead Princess

A tragic loss — in business terms, too.

43 Companies:

British American Tobacco

The pieces are falling into place.

45 Fast-Food Chains:

The End Of The Burger Boom?

Believe it or not, Americans may be getting
jaded about one of their favorite foods.

51 Distribution:

Productivity Is More Than Robots

Eight ways to turn a dull business into a
glamorous business.

58 Companies:
Sysco Corp.

The secret: paying attention to details.

60 The Up & Comers:

New Hampshire Ball Bearings

Japan Inc. versus Our Town.

73 The Up & Comers:
McRae Industries

Opportunity came knocking — in the form of
combat boots.

93 Profiles:

Michael Swerdlow

Turning liabilities into assets for bankrupt
companies sounds like alchemy. Actually,
it's just good business.

98 Bankruptcies:

Don't Cry For Manville's Creditors

They could have — and should have — known.

102 Companies:

Payless Cashways

For 50 years it has been giving its managers
generous incentives. Clearly, the practice has
paid off.

108 Companies:

Tucson Electric Power
A little fancy footwork always helps.

112 Companies:
H. J. Heinz Co.

Hold prices. Lower costs. Raise advertising.

118 Companies:
Data General

As it has before, it is once more coming from
behind. But this time, the maverick of mini-
computers almost waited too long.

124 Companies:

Pan American World Airways

One definition of desperation: selling used
planes to a glutted market.

130 Companies:

Fleetwood Enterprises

A multiple of 22 — for an RV maker?

132 Wall Street:
The New Breed

They aren't called "floor traders" anymore.

139 Companies:

United Industrial Corp.

The virtues of benign neglect — sort of.

144 Companies:
Logicon Inc.

"Why bother if we can't build a company?"

147 Tax Shelters:

A Yardstick Of Performance

Rating how well your shelter shelters.

150 Cover Story:

Who Will Pay The Piper? Who Won't?

Given some good news from Mexico, the
worst of the liquidity squeeze may be over.

156 The Military:
Hail And Farewell

The jeep is dead. Long live the Humvee?

161 Taxing Matters:

The Tax Shelter Nobody Wants

And for very good reasons, as it turns out.

164 The Funds:
Janus Fund

The satisfactions of nondogmatism.

166 Companies:
Primark Corp.

Putting the heat on an old boss.

168 Companies:

Tishman Realty & Construction Co.

A famous name wants a piece of the action.

172 Fast Food:

Frank Carney's Back Again

Why settle for a mere $300,000 a year?

4

FORBES. OCTOl

t —

93 Profiles: "What Swerd-
low says he's going to do,
he does "

102 Payless: the do-it-your-
self do -it -you) selfe) :

172 Entrepreneur Frank
Carney: '"When you stop
growing, you start dying. "

250 Leveraged buyouts:
Bigger is not necessarily
better

183 Language:

A Few Words On Business

Ever wonder where "sub rosa" comes from?
190 The Money Men:

Michael O'Higgins
Aggressive in defeat, cautious in success.
192 Companies:

Control Data Corp.
If you think it's nerve-wracking dealing with
U.S. unions, try Korea's.
196 Research:

Easier Said Than Done
A great idea that will take some time.
202 The Numbers Game:

The Banks' Foreign Loan Exposure
How much do they really have to tell you?

206 Technology:

Transaction Processing

For all the talk about personal computers,
there's still need for the leviathans.

212 Personal Affairs:

The Market In Your Pocket

A portfolio of gadgets that will give you stock
quotations wherever you are.

Faces Behind The Figures

226 Thomas Differ,

Getty Oil Co.

226 Stephen Kroft and Dean Dunlavey,

Sony v. Universal

227 Mario Perillo,
Perillo Tours

227 Victor Brown,
Firestone Tire &) Rubber Co.

228 Thomas O'Reilly,
Juki Office Machine Corp.
228 Hans Seidel,

Deputy Finance Minister of Austria

233 Jacques Voorhees,

Polygon DTN, Inc.

233 W. Ashley Verlander,

American Heritage Life

238 The Streetwalker:

An Old Game With New Rules

Playing the disinflationary recovery.
240 Statistical Spotlight:

A No-Name Shopping List
What happens when the blue chips falter?
250 Leveraged Buyouts:

A Few Cautionary Tales
Sometimes, everybody loses.

Money And
Investments

33

What's Ahead
For Business
34

The Forbes Index
235

The Forbes/
Wilshire 5000
Review

Columnists

253

Ben Weberman
254

Srully Blotnick
256

Ashby Bladen
258

Richard B. Hoey
260

Thomas P. Murphy
262

Stanley W. Angrist

Departments

Side Lines
10

Trends
16

Follow-Through
23

Readers Say
27

Fact and Comment
30

Other Comments
266

Editorial Index
267

Flashbacks
268

Thoughts

Photos:

10, Larry Smith/Black Star, 12, 238, UPI, 42, B. Melloul/Sygma;
43, 44, Robin Laurence, 46, Dan McCoy/Black Star; 51, 56, Arnold
Zann/Black Star; 52, Peter Calvin/Camera 5, 60, 61, 118, Steve
Liss/Liaison; 68, 132, 148, 227 middle and bottom, Bill Kelly;
73, Steve Murray, 93, )im Pozarik, 102, Hank Young/Black Star;
108, Tucson Citizen; 112, 168, 190, Joyce Ravid, 129, Iim
Sugar/Black Star, 130, 144, 226 top, 227 top, )im McHugh,
139, 233 bottom, Paul Solomon; 151 Evonne Hemsey/Liaison;
154 top. Wide World; 154 bottom, T. Korody/Sygma, 164, Carl
Iwasaki; 166, Eric Smith/Liaison; 177, Bill Grimes/Black Star;
194, Roland Neven/Liaison; 212, Eric Poggenpohl; 215,
|oe McNally/Camera 5, 226, Dan Wheeler; 228 top Tom
McCarthy; 228 bottom, Fred DeVan, 233 top, ludith Gcfter
Illustrations:

6, By permission of Bill Mauldin and Wil-)o Associates, Inc.; 98,
161, 183, 184, 185, 202, Chas. B. Slackman
Cover:
Ed Sorel

Forbes(ISSN 00 15 69 14) is published biweekly by Forbes Inc., 60 Fifth
Ave., New York, N Y 1001 1 . Second-classpostagcpaidat New York,
N Y. and at additional mailing offices. Subscription $33 a year,
U.S.A. Postmaster: Send address changes to Forbes, 60 Fifth Ave.,
New York N Y 10011. Copyright © 1982 Forbes Inc. Title is
protected through a trademark registration in theU.S Patent Office.

FORBES. OCTOBER 11. 1982

5

Forbes

Side Lines

Editor

James W. Michaels

Managing Editor

Sheldon Zalaznick

Assistant Managing Editors

lames Flanigan, Geoffrey Smith, Paul Sturm
Executive Editors: James Cook, Jefferson Grigsby
Economics Editor: Ben Weberman
Art Director: Everett Halvorsen

Senior Editors: Ruth M. Gruenberg, Howard Rudnitsky,

John A. Conway, William G Flanagan, Thomas O'Donnell,

Stephen Kindel, Harold Seneker

Contributing Editors: Richard Phalon,

Clothield Spencer, Norman Gall, Dero A. Saunders

Associate Editors: Jean A. Briggs, Subrata N. Chakravarty,

Christine Miles, Donald E Zipperer, Carol E. Curtis,

Richard Greene, Eamonn Fingleton, Richard L. Stem,

Betty Franklin, Barbara Ettorre, lohn R. Dorfman, Pnscilla S. Meyer,

Howard Banks, Steve Kichen

Staff Writers: John A. Byrne, Pamela Shernd

Reporters: Steven Flax, William Harris, Thomas Jaffe,

Paul B. Brown, Jane Carmichael, Jeff Blyskal, Barbara Rudolph

Senior Reporter-Researchers: Alyssa A. Lappen,

Jonathan Greenberg, Jayne Pearl, Paul Bornstein

Reporter-Researchers: Merrill Vaughn, Jon Schnber, Jay Gissen,

Janet Bamford, Laura Saunders, Robert McGough, Anne Field,

Laura Rohmann, Kevin McManus, Ellyn Spragins, Aaron Bernstein,

Robert Teitelman, lill Andresky, Theodore Lowen

Washington Bureau: Jerry Flint, Manager; Allan Dodds Frank,

Desiree French

West Coast Bureau: John Merwm, Manager; Kathleen K. Wiegner,
Michael Cieply, Ellen Paris

Southwestern Bureau: William Baldwin, Manager;
Toni Mack, Anne Bagamery

Midwestern Bureau: Maurice Barnfather, Manager;
Lisa Gross, Bess Gallams

European Bureau: Lawrence Minard, Manager; Rosemary Brady
Columnists: Heinz H. Biel, Stanley W. Angnst, Srully Blotnick,
Thomas P. Murphy, Richard B. Hoey, David Dreman, Ashby Bladen
Art Department: Roger Zapke, Ronda Kass, Associate Art Directors;
Robert Mansfield, Assistant Art Director; Nikki Frost,
Thea S. Wieseltier, Photo Editors; Hadas Siev, Photo Research;
Andrew Christie, Charts

Information Services: Robert M. Sterenson, Manager;
Library: Dolores A. Lataniotis, Chief; Clanta Jones,
Santiago Alvarado, Gloria Katz

Statistics: Donald E. Popp, Editor; Maria M Latorraca, Associate

Editor; Ann C. Oliver, Assistant Editor; Edward Sakalian,

Melody Wagstaff, Diana L. Hoadley

Copy Department: Marlene Mandel, Deputy Chief;

Jane Lashaw, Dolores Guilhot

Director of Production: John J Romeo;

Robert M. Rosengarten, Edward B. Morgan, Peter Althoff,

Joseph De Gray, Lucille Landi, Assistants

Advertising Production: Patricia Deckelnick

Director of Photocomposition: James Cianelli,

Karen Heuler, Assistant, Mark Decker, Johnnie English, Arthur Petz

Chairman and Editor-in-Chief

Malcolm S. Forbes

President and Deputy Editor-in-Chief

Malcolm S. Forbes Jr.

Publisher

James J. Dunn

Executive Vice President

Leonard H. Yablon

Vice President-Associate Publisher: Christopher Forbes

Vice President-Administration: Scott R Yablon

Vice President-Finance: Seymour Fried

Vice President-Controller: Joel B. Redler

Vice President-Treasurer: Leonard Greenberg

Director of Advertising: Stephen G Nicoll

Director of Corporate Communications:Wm. Donald Carson

Director of Circulation: John M Thornton

Director EDP: Jerome Hoffman

Advertising Representatives:

New York: Donald W. MacDonald, Mgr.

George C. Clissold, G. Croft Henry; Richard Calkins;

Ellen S. Dweck, Jeffrey M. Cunningham,

Christopher M. Andrews, Nick Carter;

Arnold J. Pnves, Director, Advertising Supplements;

Thomas G. Petersen, Co-Dir. Adv. Supplements;

Joan E van Diepen, Co-Dir. Adv. Supplements

James W. LaCirignola, Dir. Int'l Adv., The Americas, Asia, Pacific

Atlanta: Charles S. Thorn Jr., Mgr.

Chicago: James H. Mallon, Mgr.

William J. Powers Jr , Robert W. Buckley Jr.

Cleveland: James B. Norton, Mgr.

Dallas: Fred H. Wellington, Mgr

Detroit: Don Dane, MgT

Los Angeles: Craig E. Miller, Mgr.

San Francisco: Richard W. Reynolds, West Coast Mgr.

London: Peter M. Schoff, Dir. Int'l Adv.

Corp. Report Updates: Sarah Mai

Classified: Linda Loren

Mgr. Subscription Service: T.M. York (212-620-2243)
60 Fifth Ave., New York, N.Y. 10011

PAID CIRCULATION OVER "00,000

FOUNDED 1917 BY B.C. FORBES 11880-1954)

Issue of June 23, 1980

No scare talk

"Too much contemporary journal-
ism is crisis journalism — written as
though events have taken place in a
vacuum, as though they do not have
roots and parallels in history," we
noted in a story in the issue of June
23, 1980. The thought was prompted
by the cover story in that issue: "Re-
cycling petrodollars — how much
more can the system take?" Con-
tributing Editor Norman Gall, who
wrote the story, strongly doubted
that the Western banking system
could go on much longer accepting
the huge dollar deposits from oil-
rich Arab states and putting them
right back out again in loans to in-
creasingly burdened borrowers. "If
an American bank lends Arab mon-
ey to an African nation so that the African nation can burn oil," Gall
wrote, "there is no productive investment generating cash to pay the
interest. So much for those who say, 'Why not just roll these loans
over and over?' People will lend you long-term money to buy a house
or build a factory. But who would give you a 25-year loan for a big
party you want to throw tomorrow?"

Gall went beyond facts, figures and sharp analogies in that report to
find fascinating parallels in history dating back to Lorenzo de Medici's
troubles as banker to brawling, backward borrowers in 14th-century
England.

In this issue Gall takes another thoughtful look at the state of
international banking. From his base in Sao Paulo, Gall was well
placed to tap sources in four especially troubled countries — Brazil,
Chile, Argentina and Mexico. Again, you will find his report short on
surface scare talk and long on perspective, including some shrewd
insights of a brilliant, little-known Hungarian economist, Melchior
Palyi, into why and how banks overextended themselves in the 1920s.
Gall's report begins on page 150.

Four Jills in a Humvee?

Readers of a certain age — those who remember, say, Carole Landis
and Kay Francis co-starring in the 1944 movie Four Jills in a Jeep — are
entitled to one small sigh as they read
Allan Dodds Frank's story on the immi-
nent retirement of the jeep, four-
wheeled workhorse of the U.S. military
for 40 years. Terrain couldn't kill it, but
technology could . . . and did. The jeep is
too small, it turns out, for truck-mount-
ed missiles and such. The Pentagon,
Frank reports (p. 156), is staging a com-
petition to choose its replacement. Bill
Mauldin's classic World War II cartoon
will probably mean nothing to anyone
who has to ask who Carole Landis and
Kay Francis were.

Managing Editor

\\\\\

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_State_

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DfCtaphone 8. Dual Display are trademarks of Dictaphone Corporation Rye New Yon

What do you call a company
with a 22-year record of increases in
earnings per share?

AT

When looking for a leader in energy, energy
services and resources, it's often advisable to check
beyond a company's recent performance.

For example, has the company shown strong,
consistent growth over 20, 10 or even 5 years?

Sonat has. We're a company with assets and
revenues of over $2.6 billion. Sonat's earnings
increased 18% in 1981. During the most recent
5- and 10-year periods, earnings per share grew at
16% and 15% respectively. From 1959-1981, earnings
per share grew at a compound annual rate of 14%.

We've paid a dividend every year for the past
45 years. Over the past 5 years, the dividend rate
has grown at a compound annual rate of 19%,
outpacing inflation by over 9%.

Today, Sonat Inc. operations across the U.S.
and overseas include: Southern Natural Gas,
Sonat Exploration, Sonat Offshore Drilling,
Sonat Marine and Southern Forest Products.

To learn still more about us, write: Sonat Inc.,
Corporate Communications, P.O. Box 2563,
Birmingham, Alabama 35202. Dept. FB I 0/11
Telephone: 205/325-3800 or 212/344-7955.
Ask for our annual report.

FOR SALE:

Those companies looking for an
ilvantageous location in Washington
ay be surprised to learn there's an
keel lent address available near the
Ihite House.
Fairfax County, Virginia.
By locating in Fairfax County, any
; mpany influenced by government is
a good position to influence back
ipitol Hill, regulatory agencies and
|;y staffers are just 30 minutes away.

Since Washington attracts the best
id the brightest, Fairfax County firms
in tap an executive, managerial and
^rical pool perhaps unequaled any
here in the nation.

Companies here also have at their
sposal many of the country s leading
nsulting and accounting firms, prom
ent law firms, excellent medical and
search facilities in addition to many
estigious financial institutions.

Since Capitol Hill is at the center
of international as well as national
affairs, Fairfax County executives can
take advantage of outstanding trans-
portation and communication systems
to reach worldwide markets. Yet for
those companies who do business closer
to home, Washington is a lucrative
opportunity itself. It ranks among the
top markets in the country in apparel,
furniture, automobile and retail sales.

Equally important, Fairfax County
offers a productive environment for
business. From our AAA bond rating
to right to work laws, from a moderate
tax structure to 8000 acres zoned for
business, this is a county so suited to
business that over 1500 major associa-
tions, headquarters and corporations
have already located here.

And why not? With these rolling
meadows and wooded valleys and that

historic white house on the hill, you

can easily picture this to be the best

place in America for business to work,
i — i

Please send me complete information on all the
advantages of a Fairfax County, Virginia location
for my company.

F004

Name/Title-

Company

Phone

Address.
City

State/Zip

Inquire in confidence to: April L. Young, Executive
Director, Fairfax County Economic Development
Authority, 8330 Old Courthouse Road, Suite 800,
Tysons Comer, Vienna, Virginia, 22180. Phone
(703)790-0600.

FAIRFAX COUNTY,
VIRGINIA.

Trends

Pay per peek

Though 24 million American homes
now have cable television, only 2 mil-
lion can order up a movie or TV special
on a one-time fee basis. (Regular cable
service means taking what is offered
for a flat fee.) Cable consultant Mi-
chael Marcovsky, however, predicts
that the "pay-per-view" cable market
could swell to 10 million households
by 1985 and bring in gross revenues of
about $400 million a year. "Pay-per-
view TV will be to the 1980s what
satellites were to cable television in
the 1970s," says Marcovsky, president
of Marnel Associates Ltd. and an advis-
er to Cox Cable, Playboy and SFM
Media, among others. Pay-per-view
works through special computer tech-
nology, installed at cable networks,
that allows consumers to order their
movies by phone or, in some systems,
by simply tuning in and getting the bill
later. "Pay-per-view TV is like picking
up your magazine on the newsstand
when you want it, rather than having
it delivered by subscription," Mar-
covsky says. One of the first national
pay-per-view offerings is scheduled for
this fall, when 20th Century-Fox plans
to air its box-office blockbuster, Star
Wars, for $8 per household, a show it
expects to gross more than $3 million.
Universal is getting set to screen the
musical Pirates of Penzance on pay-per-
view TV early next year.

The sacred cow

After watching their share of the milk-
packaging market shrink from 78% in
1971 to 41% today, the papermakers
are fighting back. The Paperboard
Packaging Council's milk-packaging
group — International Paper, Weyer-
haeuser, Westvaco, Potlatch and
Champion — is charging that translu-
cent plastic containers, which now
have 58% of the market, allow light to
damage milk 's vitamin content and fla-
vor. "Milk in plastic can be robbed of
90% of its fortified Vitamin A and 14%
of its Vitamin B, in just 24 hours,"
warns a council ad that ran in Sacra-
mento. Similar war cries (based on uni-
versity nutritional studies) appeared in
Sioux Falls, S. Dak. and in Minneapo-
lis-St. Paul. The ads curdled the milk of
a number of interested parties, includ-
ing the Sacramento district attorney's
fraud division. (The California Milk
Advisory Board and the Milk Industry
Foundation, the Paperboard Council
says, feared that the cam), ligns were
"negative about milk.") Coi umer re-

sponse, however, delighted the paper-
makers. In Sioux Falls, after a two-
month council campaign, suppliers of
23% of the area's milk reported a sales
increase of 19% and sales of milk in
plastic gallon containers dropped
from 82% to 32%. The stakes arc im-
portant. The milk-container market,
an estimated $370 million in 1971, is
now $961 million, even though con-
sumption has remained steady at 5.8
billion gallons a year.

The ultimate producer
Millions in the milk pail.

Health and unemployment

Recessions wreck balance sheets and
they don't do much for public health
either, according to M. Harvey Bren-
ner, a Ph.D. and professor at the Johns
Hopkins School of Public Health.
Congress asked Brenner to study the
correlation and he will report to the
Joint Economic Committee next Janu-
ary. His statistics show an ominous
connection. When unemployment
rises 1%, he says, first-time admis-
sions to state mental hospitals in-
crease 4.3% for men and 2.3% for
women; suicides go up 4. 1 % ; murders,
5.7%; and state prison populations,
4% . Over a six-year stretch following a
jump in the jobless rate, Brenner re-
ports, 1.9% more people die of heart
disease, cirrhosis and other stress-re-
lated chronic ailments. He estimates
the economic slump in 1970, with its
1.4% increase in unemployment, was
linked to 51,570 deaths by 1975. The
effect of an unemployment increase,
Brenner told the House Banking Com-
mittee this summer, falls hardest, nat-
urally, on the job losers and their fam-
ilies and dependents. But it also hits
those who lose income because of

Edited by John A. Conway

small and medium-size-business fail-
ures and workers in companies where
the survival of jobs and of the firms
themselves are in jeopardy. The im-
pact of unemployment, or related
work stress, he says, frequently
doesn't ease for up to two to four years
after a recession strikes.

New voice in the trade war

The transatlantic war of words over
international trade has a fresh voice,
that of Roy Denman, the European
Common Market's new economic am-
bassador to the U.S. In his first blast
since arriving in Washington, Den-
man, a respected British trade expert
and negotiator, told the U.S. Chamber
of Commerce that "relations across
the Atlantic are going through the
roughest patch in living memory."
The world's trade system could col-
lapse, he said, if the Reagan Adminis-
tration persists in its "single-minded
and aggressive pursuit" of American
interests in steel and farm products
and in trying to block the Soviet gas
pipeline. The charge that previous
U.S. trade negotiators had been too
soft with Europe, Denman said, is just
not true: "John Connally, Mike Blu-
menthal and Bob Strauss come to
mind, and anyone who thinks he could
make a quick dollar out of those men
believes in unicorns."

Home -buyer blues

Hopeful home buyers had best keep
on hoping. Mortgage rates are not go-
ing to fall significantly before at least
next spring, according to the experts.
Long-term lenders are leery that huge
federal deficits will heat up the de-
mand for credit again, and the princi-
pal mortgage lenders, the savings and
loan associations, say they can't drop
below 15% or 16% until their own
borrowing costs come down. "It will
take more than just a few weeks of
lower interest rates before home
mortgage rates can fall much below
where they are now," was the word
from Roy Green, the Jacksonville, Fla.
S&L president who is chairman of the
U.S. League of Savings Associations.
Nearly a quarter of their deposits, he
told a group of S&T executives, are in
high-interest, 30-month certificates,
so they are saddled with expensive
money for months or years ahead.
Timothy Howard, chief economist for
the Federal National Mortgage Asso-
ciation, the federal agency that buys
mortgage paper from banks and S&Ls,

in

FORBES. OCTOBER 11. 1982

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Trends

says he does expect mortgage rates to
level off between 15% and 16% in the
next few months. But, warns the man
from Fannie Mae, "they will not go
dramatically lower soon."

Who's too oid?

With no fanfare, a move is under way
on Capitol Hill to eliminate manda-
tory retirement. Federal workers al-
ready can work as long as they choose,
and Congress wants to extend that
right to private industry. Pennsylva-
nia's GOP Senator John Heinz and
Florida Democrat Claude Pepper in
the House are pushing a bill to do this.
The legislation would not affect hir-
ing or promotion for over-70 workers
but would make it illegal to force any-
one to retire solely because of age.
The sponsors can count on one potent
backer, 71 -year-old President Reagan,
who has said: "When it comes to re-
tirement, the criterion should be fit-
ness for work, not year of birth." Cor-
porations and business groups gener-
ally are fighting the idea, saying they
can't promote younger employees if
their seniors won't leave. Firing older
workers for other reasons, business-
men also argue, will mean a spate of
lawsuits charging age discrimination.
Such litigation, in fact, has already
become routine when anyone over 40
is let go; such suits have tripled, to
about 15,000 annually, in the last four
years, and out-of-court settlements
went from $12 million in 1980 to $28
million last year.

Hard times for hard hats

The construction industry, where the
union card used to come with the
hard hat, now awards about 60% of its
projects to nonunion shops, according
to the 16,000-member Associated
Builders &. Contractors. Since ABC
began courting jobs in seven cities last
January, says its president, John Field-
er, it has landed more than $200 mil-
lion worth and is negotiating for an-
other $380 million. (The seven targets
were Atlanta, Boston, Cincinnati,
Dallas, Los Angeles, Miami and Seat-
tle.) Fielder also claims success in
places like Mobile, Ala., saying non-
union shops (ABC calls them "merit
shops") have landed 85% of all con-
struction jobs there since 1975, when
they had only 15%. "The real shift,"
he says, "has been on the large indus-
trial projects like refineries and petro-
chemical facilities." The AFL-CIO
counters that ABC's gains have been

mostly on penny-ante jobs and labor
has had successful organizing drives
in centers like Houston and southern
California. With unemployment at
22% of 4.1 million members, howev-
er, a spokesman says: "Our people are
taking jobs wherever they can, so I
can't say we don't have union people
in nonunion jobs." To stem the
losses, the AFL-CIO's 15 construction
unions hope to lend $500 million of
their pension money to banks for con-
struction loans, and "we would ex-
pect the banks to use the money for
union projects," the spokesman says.

The kudos champion

The current record holder for honor-
ary degrees is Notre Dame's presi-
dent, the Rev. Theodore Hesburgh,
with 90 unearned doctorates. Father
Hesburgh, now 65, got the 90th from
Michigan's Kalamazoo College this

President Herbert Hoover

A new face in the hall of fame.

year. The old champion in the kudos
sweepstakes was the late President
Herbert Hoover, who had garnered 89
honorary degrees before his death, at
90, in 1964.

It is more blessed . . .

Ronald Reagan's call for more corpo-
rate giving has produced a windfall for
at least one nonprofit group, the Na-
ture Conservancy. The organization,
which acquires land for preservation
(nearly 2 million acres of salt
marshes, forests and the like in 20
years), got $3 million in corporate
cash in 1981, a 70% increase for the

year. That beats even the 50% com-
pound growth rate the Conservancy
enjoyed from 1975 to 1981. "Corpora-
tions typically sat down and took a
new look at social responsibility be-
cause of the President's programs,"
says the Conservancy's president,
William Blair Jr. "It's no longer just
Exxon and the big guys that support
us," Blair says, "and the per capita
corporate gift is increasing." One ex-
ample of the new largess came to the
Conservancy in California, where
Hewlett-Packard's David Packard and
Tom Wilcox, chairman of Crocker
National Bank, set out two years ago
to raise $15 million to preserve and
maintain endangered environments.
Since fundraising began in 1980 —
about the time of the Reagan appeal —
corporations have pledged more than
$9 million, and seven tracts have been
purchased. But the Reagan plan cuts
two ways. "Government agencies
used to ask us to buy land before they
had the appropriations, with the idea
that they would eventually take title
and return our cost," Blair says. "We
have bought millions of dollars'
worth of land for the federal govern-
ment. But many agencies have frozen
spending, so we are holding the land,
and, in effect, lending Uncle Sam
money."

If it ain't broke, don't fix it

Car owners are paying less and less
attention to manufacturers' recall no-
tices. Only one in two now bothers to
have the car checked, according to a
new study by the General Accounting
Office, the Congressional bird dog. In
1974, when Congress passed legisla-
tion to increase response, three out of
four owners were taking action on
recalls. The report blames the lack of
interest on two factors, a general ho-
hum attitude toward the notices (128
million vehicles have been recalled
for safety defects since 1966) and diffi-
culties decoding just what the recall
letter means. After looking over 1 1
letters from foreign and U.S. auto-
makers, GAO investigators found
their reading level ranged from high-
school senior to college senior, while
54% ' of American adults read at or
below the llth-grade level. (Instruc-
tions for the IRS Form 1040 are at
grade 10, the Ladies Home Journal at
grade 7.) The GAO had a consultant
work the reading level down to fifth
grade by making such changes as
"touch" for "come in contact with,"
"safety defect" for "a defect which
relates to motor vehicle safety" and
"free" for "at no charge to you."

12

FORBES, OCTOBER 11, 1982

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E pluribus unum

The Minneapolis-based Northwest
Bancorporation (Banco) was "quietly
facing the greatest challenge in its 51-
year history — tightening up on its af-
filiate banks," Forbes reported two
years ago (Sept. 29, 1980). Its 80-odd
banks, scattered over seven states
(Banco had grandfather-clause immu-
nity from the MacFadden Act's ban on
interstate banking), had always operat-
ed freely with only guidelines from
their parent. The bank had also just
weathered a management crisis precip-
itated by the accidental death of its
president two years earlier. His succes-
sor, 62-year-old Chester Lind, had been
catapulted into the job, which he never
expected. Understandably, he concen-
trated on setting up a surer line of
succession before stepping aside last
October (remaining as a director and
chairman of the executive committee).
The new chairman, John Morrison,
tackled the challenge Forbes had been
concerned about and has just complet-
ed restructuring Banco with new offi-
cers, new chains of command and even
a new name.

Morrison's tack was E pluribus
unum. "We don't feel," he explains,
"that we can meet the competition
we're going to have from the larger
money banks if we ask each of our 86
separate banks to compete. So we're
trying to provide a mechanism to act
as one $16 billion organization." To
do that, most of the four-score affili-
ates will be grouped into eight regions
reporting to corporate vice chairmen.
Senior vice presidents for finance, ag-
riculture, consumer and commercial
banking will give the banks strategic
direction in their broad market seg-
ments. Morrison (formerly vice chair-
man) sees his main rivals as "about 12
banks," such as Continental Illinois,
Bank of America and Citicorp. With
the new setup, he says, he is not "too
concerned about that competition."

Banco is also expanding its non-
banking functions, like venture cap-
ital and commercial finance, which
accounted for about 10% of its earn-
ings last year. Late last month it laid
out $252 million to acquire Iowa's
Dial Corp., a $1 billion consumer-
loan operation. With 467 offices in 38
states, Morrison says, Dial "is one of
the largest independent consumer fi-
nance operations and, in our opinion,
one of the best."

To top off the remodeling, Morrison
has also decided to rename the institu-
tion that has been banker to the Paul

Banco 'sjohn Morrison

New look for Paul Bunyan's bank.

Bunyan country for half a century. "We
have about 30 banks called First Na-
tional of Something," he says. "We
have about 30 banks with the North-
western name in them. We give a scat-
tered presence to customers." So next
spring Banco will become Norwest
Corp., an identity Morrison hopes will
allow it "to assert a much stronger
presence in the marketplace." In dol-
lars-and-cents terms, he adds, "it will
also simplify the organization's inter-
nal practices and procedures, resulting
in significant cost savings."

Ben Graham with a twist

Four years ago, when their Rochester,
N.Y. investment firm was nine years
old, money men William Manning
and William Napier were beating the
Standard & Poor's 500 by 16%. With
an 8.9% average return on their equi-
ties, they ranked in the top 2% of the
Becker Securities' funds evaluation
index (Forbes, Apr. 3, 1978). Manning,
a Merrill Lynch veteran and Napier, of
Rochester's John J. DeGolyer, had set
out with $50,000 capital in 1969 to
beat the big-time money managers
with' a system Forbes called "Ben
Graham with a twist." The twist was
that instead of studying one com-
pany's balance sheet, M&N ran a
whole industry's numbers through
the computer to determine supply
conditions and that industry's ability
to raise debt or equity capital. Their
contrarian theory was that if demand
increased where there wasn't capacity
to meet it, earnings would be forced
higher. It had worked well for Man-

16

FORBES, OCTOBER 11, 1982

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Follow-Through

ning and Napier but Forbes still cau-
tioned that "rock stars have longer
careers than most stock market
stars."

M&N's star, however, has stayed
bright. In 1978, Manning & Napier
managed $120 million; today it has
$575 million in assets under manage-
ment (80% in institutional funds) and
a 43% annual compounded growth
rate. Returns have also remained
high, with gains even in the down
years. In spite of the market debacles
of last year and early 1982, Manning
& Napier's equity returns from 1978
through June 1982 were 14%, vs. 9%
for the Standard & Poor's 500. Long
term, M&N did even better, ranking
in the top 1% on Becker's equity
charts for the last six years.

The M&N strategies have remained
the same. "Looking at the balance
sheets of industries kept us out of oils
and high-tech stocks in 1981," Man-
ning says. Instead, he looked for com-
panies that would benefit from a fall
in oil prices, and his picks for 1981
included Firestone, B.F. Goodrich,
Monsanto and Union Carbide. But he
also got in and out of the market last
year. "At 800, the market competes
on an underlying assets basis, and you
don't have to have any earnings," says
Manning. "But over 900, people were
trading on earnings, and we'd sell out
again. We bought on assets and sold
on earnings."

At present, Manning is using his
industry balance sheets to find the
"low cost producers" in cyclical
stocks, Bethlehem Steel, B.F. Good-
rich in polyvinyl chloride and Cela-
nese in fibers. "Because of the strong
dollar and foreign competition," he
says, "you'll see more bankruptcies in
the cyclical areas. But when things
turn around, the remaining low-cost
producers will pick up market share
and the leverage will be enormous."
Manning plans to sell before the com-
panies begin making enough for their
industries to again expand.

While using cyclical stocks as an
inflation hedge, Manning holds a
50% position in government bonds
against deflation and recession. He is
buying government bonds with cou-
pons greater than the rate of infla-
tion and cyclical stocks at levels "sc
far below replacement value thai
they looked like the perfect hedge.'
Says Manning, "You are not sup-
posed to be able to avoid risk with-
out paying the insurance premium
but I think we did."

FORBES, OCTOBER 11, 1982

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Readers Say

The Forbes Four Hundred

Sir: The Forbes Four Hundred (Sept.
13) was a job that needed to be done.
We [the other Americans] do need to
know who the richest Americans are
and something about how they got
that way.

— Kenneth E. Vandaveer
Paso Robles, Calif.

Sir: You speak of "The enormity of
this task." Congratulations on having
found the precise word. My Webster's
defines "enormity" as 1: the quality
or state of exceeding a measure or rule
or of being immoderate, monstrous or
outrageous; 2: a grave offense against
order, right or decency.
— Iri'ing Reich
San Diego, Calif.

Sir: Serves no useful business purpose
whatsoever, but it will add to the list
of targets for nuts.

— -J.E. Murrhee
Gretna, La.

Sir: A classic case for support of cap-
italism. If the wealth of this elite
group (approximately $135.5 billion)
were divided among the rest of the
population, each person would re-
ceive roughly $600. Probably each of
us could use an extra check, but we
might encounter difficulty finding
anything worth spending it on. Gone
would be most of the consumables,
durables and even real estate markets
that we have become accustomed to.
— Fletcher A. Birmingham
"a contender"
Columbia, Md.

Sir: The total wealth of the Four Hun-
dred equates to about 50 days of ex-
penditures of the federal government.

— -James E. Wickersham
Piedmont, Calif.

i Sir: A literary Edsel . . . has appeal
lonly to "financial voyeurs."
I — Thomas F. Delaney
fWest Hartford, Conn.

iSir: People are wealthy. It is pastries
;that are rich.

| — -John Starrs

Vice President and Director of Marketing
First Interstate Bank of California
Los Angeles, Calif.

Sir: After a lifetime of observing those
with wealth, it is not unreasonable to
say that money doesn't care who
'holds it; it is not discriminating.

Stringing a few cliches together, I
think it fair to say that good character
is necessary for the proper steward-
ship of great wealth; support of others
should be in keeping with your own
good fortune in life — and finally, pigs
ultimately wind up in the slaughter
house. My compliments to you for
your effective essay on page 170.
— Walter Annenberg
Radnor, Penna.

Sir: As secretary of Yale 1931, I am
making note in our periodic publica-
tion that three of our classmates made
your Rich List: Tom Evans, Jack
Heinz and Gay Donnelley. One com-
ment: All of these were very generous
in our record-breaking $2 million
Alumni Fund contribution at our
50th Reunion.
— C. Colbum Hardy
West Palm Beach, Fla.

Sir: You don't have to have any mon-
ey in the bank to be greedy. A parish-
ioner once said to me, referring to the
richest man in the parish, "If I had his
money, I'd underwrite the church
debt." We all can afford to be generous
with another man's money, just like
it's fun to confess our neighbor's sins.
— The Reverend William A. Guenther
Rosemont, Penna.

Sir: The 400 — Congratulations!

— Paige Rense
Editor- in -Chief

Architectural Digest and GEO

Los Angeles, Calif.

Remember Prohibition?

Sir: You support using the Coast
Guard to fight drug smuggling (Fact

and Comment, Aug. 30). Were you
aware that the "unmitigated evil" the
military is going after is marijuana?
Marijuana is not addictive or lethal.
You just endorsed a move that's guar-
anteed to have one effect: increase
domestic cultivation and raise the
price to make the black market even
more attractive to distributors.
— Paul H. Kuhn Jr.
Chicago, III

No dodging these

Sir: In registering 18-year-olds for a
possible draft, you state, in part, "Giv-
en these simple requirements [provid-
ing draft number when applying for
driver's license, employment, Social
Security card, etc.] very few would
continue not to comply" (Fact and
Comment, Sept. 13).

You don't have to be 18 to get a
driver's license, be employed or have a
Social Security card.
—John L. Brungardt
Rancho Cordova, Calif.

No problem. Computers could be pro-
grammed not to renew your driver's li-
cense after age 18 unless you hai >e sent in
your draft registration number. Your em-
ployer has your birtbdate and would be
required to get your number after you
turn 18. Your Social Security card would
become invalid when you became 18
and didn't send in your number. — MSF

Farmer's lament: strong $

Sir: Your cover story on American
agriculture (Aug. 30) didn't mention
an essential factor in the U.S.' export
difficulties: a highly valued U.S. dol-
lar. The Administration's overwork-
ing of interest rates as an economic
tool has revalued the dollar by attract-
ing capital imports, and this has
placed an extreme burden on our ex-
port abilities.
—John Everett Jones
Dewittville, N.Y.

We don't MASH patients

Sir: Re "MASH meets McDonald's"
(July 19) about the outpatient surgery
movement in this country. Surgeons
perform outpatient surgery at [a nor-
mal] speed.

The release-in-a-matter-of-hours is
possible because the patient has had a
less complex procedure, is basically

FORBES, OCTOBER 11, 1982

23

1

SI

Wang is the leader
in office automation.

To limit yourself
to the same old computer
company could be
a giant mistake^

In the evolving office environment, yesterday's
solutions no longer solve today's problems. People
need something more than isolated office machines
and terminals driven by mammoth mainframes.

Office automation offers the answer.

Yet curiously only one computer company really offers office automation. And that's Wang.

Today, only Wang has the systems, the technology and the worldwide resources to handle all the
forms of information you need to manage: words, numbers, images, voice.

So talk to the old guard if you must. But if you're serious about office automation, don't make the
mistake of not talking to the leader. Wang.

For a presentation on Wang office automation, call 1-800-225-0643 (in Massachusetts call
1-617-459-5000, ext. 5711). Or write to Wang Laboratories, Inc., Business Executive Center,
One Industrial Avenue, Lowell, MA 01851.

WANG

The Office Automation Computer Company'

A427 ©1982 Wang Laboratories. Inc.

Readers Say

healthy and is willing to take respon-
sibility for home recovery. Lowered
costs also result from the elimination
of overnight hospital stays and [un-
necessary] tests that aren't always
necessary for simpler procedures.

The movement began, not to ac-
commodate a fast-paced society ad-
dicted to fast-food emporiums and the
like, but as a way to fight ever-escalat-
ing medical costs.
— Richard R. D'Antoni
Senior Vice President,
Medical 21 Corp.
Houston, Tex.

Flushed with attention

Sir: Re your criticism of that Kohler
ad (Fact and Comment, Sept. 13). A toi-
let in the middle of the road certainly
is absurd (with or without a lovely
woman). A number of truckers have
actually written to point out that
such installations will definitely
cause accidents.

This Kohler campaign ranks as the
best ever in attracting readership, and
the greatest sin in advertising is to be
ignored. Thanks for noticing us.
— EL Nelson
Men lagei >ie?it Superi 'isor,
Kohler Account
Camphell-Mithnn, Inc.
Minneapolis, Minn.

Food warning

Sir: Thanks very much for warning
me away from Joyce's and The As-
sembly (Fact and Comment, Aug. 30).
Like you, I had seen the ads in the New
York Times and thought that anybody
that interested in quality food would
cook it correctly.
— Dennis Lean1
New York, NY.

Smaller gain

Sir: Houston Natural Gas is listed in
|i "Games companies play" (Aug. 30) as
I having added earnings as a result of an
li exchange of common stock for sink-
I ing fund debentures of $13.9 million.
Actually that number represents the
entire exchange, not the net gain,
which was $4.3 million.
\ — Dai 'e Keith

i Vice President, Corp. Communications,
\ Houston Natural Gas Corp
Houston, Tex.

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:ORBES. OCTOBER 11. 1982

25

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Fact and Comment

By Malcolm S. Forbes, Editor-in-Chief

VETO OVERRIDE MORE A MESSAGE THAN A DEFEAT

Washington pundits (who have to do it regularly even
hen there's not much to pundit about) went into orgy

peculating about the "collapse" of President Reagan's
out in Congress when House and Senate overrode his

eto of that $14 billion appropriations bill.
The override had a distinct message, and it had noth-

lg to do with the President's overall congressional sup-

Drt on major policies. This supplemental appropriations
11 wasn't a budget buster. In fact, it called for $2 billion
ss spending. What it did do was redirect some of that

bending.

Congressmen and Senators were fresh back from their
bbor Day recess and constituent pulse-taking when vot-
4g on the veto. Their reading is similar to what lots of us

have been writing: The American people support strong
defense but will not support spending unascertainable
additional $bilhons for every system and every thing that
every Braided Cap has asked for and been given by Secre-
tary of Spending Weinberger.

Righting tax wrongs won't bring in anything like
enough revenue to make a dent in the projected breathtak-
ing federal deficit. Sufficient additional taxes to make a
dent would smother incentive, retard recovery — be totally
counterproductive. Entitlements and defense have to be
tackled. Hard choices in defense must be made.

If the Secretary wants to be Mr. Nice Guy, either the
President or someone else has to make the hard choices
that the people, the Congress and common sense require.

DO YOU REMEMBER WAY BACK WHEN BANKS

used to be criticized for being too conservative?

ONE OF THE GREATEST WAR THREATS WE FACE

that present skirmishes over world trade might turn again, and if it does, there will be no winners,
ito all-out conflict. The Hawley-Smoot Tariff Act of Secretary of State George Shultz' long background in

5>30 contributed immeasurably to turning America's economics, in business, as former Labor Secretary and

ock market panic into a devastating worldwide depres- Treasury Secretary ensures an intelligent approach to eas-

)n. Protectionism threatens to become rampant once ing the burdens that threaten to ignite a world trade war.

A TIP OF THE HAT TO TIP O'NEILL

Statesmanship's not something many consider one of
le House leader's outstanding attributes. But, begorrah,
lanks to Speaker O'Neill's unleavened exercise of it,
esident Reagan's essential tax reform measure was
issed by the Democratic-controlled House.

Incidentally, on the same bill in the Senate, Senator
Teddy, too, measured up by standing up for it.

To the contrary, while Jack Kemp made firmer the
friends he already had, he moved further into right field,
further from home plate — the White House.

\U L ! l II

PALEY SAYS "SO LONG "— BUT NOT GOOD BYE

Bill Palcy, who built CBS from nothing to a consequence
in major measure unequaled, is, one of the best things that
ever happened to radio and TV. He stamped CBS with his
own character — quality, daring, determination. He picked
his way with genial toughness through the minefields that
abound in marketplace and political arena for media-using
public airwaves.
For Bill, a young HI, it's "Roger, over" — but not "out."

RESTAURANTS— GO, , STOP

• Vienna Park— 35 East 60th St. (Tel: 758-1051)— is
even more handsome in its muted-tan way than its older
sister Vienna '79, and its dishes are as delicious, which is
very delicious indeed. Traditional Viennese fare is bright-
ened, lightened with imaginative twists and touches. As we
said of '79, the Austrian capital should have one as good.

Tony Roma's, a Place for Ribs — 400 East 57th St.
(Tel: 308-0200). The menu lists most of the steakhouse-
usual, but here ribs are it. They're meaty, soft and soak up
the tasty sauce. Appalling french-fried potatoes, and the
other stuff less than good.

• Janice's Fish Place— 570 Hudson St. at 11th St.
(Tel: 243-4212). Both food and setting are cheerful and
informal with some imaginative combinations that work,
i.e., asparagus with bleu cheese dressing, swordfish ten-
yaki and shrimp saturated with oriental vegetables. Open
until 1 1 p.m. Major drawback: no cigars allowed.

• The Post House —28 East 63rd St. (Tel: 935-2888). A
prime cut above the usual, plus the widest and freshest
variety of seafood in New York City's steakhouse milieu.
Its raisin white bread alone is worth the visit. Only com-
plaint: Thickish potato chips are mislabeled as cottage
fries. Attractive decor, generous portions.

Ruelles— 321 Columbus Ave. (Tel: 799-5100). Here
the Making-It young and the Have-It-Made middle-aged
(my definition doubtless is more inclusive than yours)
swarm in well-dressed (or smartly undressed) style around
the dramatic big bar inside or at the multiple small tables

REACTION TO THE FORBES FOUR

has been greater than it's been to anything else that's
appeared in the magazine in the past 65 years.

From among The Four Hundred, some witful responses,
more wrathful.

Many major newspapers headlined their area Richest,
while TV, radio and magazines had a field day with The
Four Hundred generally. Two major publishers have made
proposals for books.

Newsstands sold out, including 25,000 extra copies.
In the Big Apple's Pan Am Building, 1,650 copies dis-
appeared in a couple of days, and we were unable to

outside. Crisp, colorful crudites are better than lots of the
so-so other dishes. Prices are surprisingly moderate. The
passing sidewalk parade is a better show than many that
charge admission.

• La Coupole— 2 Park Ave. (Tel: 696-0100). This
huge would-be bistro at the foot of Park Avenue attract-
ed great attention at its opening and later — deservedly,
all bad. Service varies from sporadic to nonexistent, and
none of the food we sampled was worth the inter
minable wait.

Mindy's— 212 East 42nd St. (Tel: 490-8900)— is in
the new Helmsley Harley Hotel. It's attractive, spacious
with eager-to-please service. The food's only a bit better
though, than the usual hotel variety. One sign of Mindy's
unpretentiousness vis-a-vis its Helmsley Palace counter
part: The menu's understandable.

Tovarisch —38 West 62nd St. (Tel: 757-0168). If Rus
sian cuisine's your bag and you're attending Lincoln Cen
ter, this place is for you. Otherwise, otherwise.

• Keens— 72 West 36th St. (Tel: 947-3636). This olc
New York restaurant landmark with its claypipe-stud
ded interior died five years ago. It has now been resur
rected at a cost of $1.4 million by the owners of One
Fifth and the Elephant e) Castle restaurants, which
have a devoted following among Village young. It's gooc
to have Keens back, handsomely restored. While not or
a par with Christ Cella, it's all-star compared with Th
Palm pits.

HUNDRED RICHEST AMERICANS

supply their request for another 500.

Some comments, when our researchers were checkin;
(as they did, or made many attempts to do, with ever
name), are too good not to be shared. Virginia McKnigh
Bingcr [$100 million]: "Isn't that terrible? I don't reall
know." Leonard Marx ($300 million]: "Oh, if you prin
that my wife will ask not to take in any more wash
ing!" William Graham ($100 million], land-ownin
brother of Florida's Governor: "Your decimal pom
should be moved one digit to the left, although it woul
help my credit if you left it where you put it."

28

FORBES, OCTOBER 11. 1982

Richard Kleberg, asked to confirm Forbes' initial $720
million family net-worth estimate: "Well, I just took out a
$170 million note. I guess you'll have to deduct that." Don
Reynolds, on Forbes' estimate of his $200 million worth:
"There are only three ways to determine what you're
worth. You can go broke and the bankruptcy court will tell
you, or the IRS can tell you or you can sell out. I'm not
planning to do any of the three."

Wrote Clinton Laird about our estimate of his Delaware
clan's du Pont-related wealth of $400 million: "A personal
canvass of our family holdings comes up $ 1 50 million short
of your estimate, but don't worry, I'll get to the bottom of
this. Those pikers can't hide nine figures forever!"

The attorney of one Oklahoman offered to "find a re-
placement if you'll take my client's name off the list." Bob
Hope [$280 million] protested the inclusion of an estimate

TASTE AND COST

are usually unrelated.

of his real estate, " 'cause all I do is pay taxes on it. When
Time magazine said I was worth half a billion, I wired the
editor and said if he could find it I'd split it with him!"

Some Forbes readers joined those among The Four Hun-
dred in protesting that the compilation would make the
listees targets of unwanted attention by those after some
of their money in one way or another, including the IRS.

Perhaps this from the "Personals" advertising columns
of New York's Village Voice is the sort of overture they
had in mind:

. Is-

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me
re of

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WHAT YOU LOOK FOR

is what you'll see.

ALL YOU NEED TO KNOW ABOUT INVESTING

By M.S. Forbes Jr.

The extraordinary stock market
rally of recent weeks, coming at a
time of deepening world recession
and a teetering international bank-
ing system, brings to mind a state-
ment once made by John Maynard
Keynes at a meeting of an invest-
ment trust of which he was chair-
man (Keynes was a very successful
speculator): "Nothing is more suici-
dal than a rational investment poli-
cy in an irrational world."

GETTING BACK TO BASICS

Is there anyone with authority at
the Pentagon who realizes that one
important aspect of an effective de-
fense is well-trained combat forces
that are capable of fighting?

Apparently not, to judge from the
results of recent military exercises
carried out by the U.S. and some of
its NATO allies in Germany.

Here is how the New York Times'
longtime and able military corre-
spondent, Drew Middleton, de-
scribed this latest round of maneu-
vers, which involved 70,000 troops:
"No fixed-wing aircraft were visi-
ble. This struck some observers of
the operation as odd because one of
the aims of the exercise is to prac-
tice air-ground operations. . . .
Overall, the impression is that be-
cause of shortages of funds, [this
annual exercise] is not on its usual

scale. Military observers comment-
ed that NATO forces did not appear
to learn from past mistakes."

This is no isolated incident.
Knowledgeable sources say that
most of our combat forces are still
insufficiently trained.

Because Defense Secretary Wein-
berger refuses to make choices on
the services' ever-expanding wish
lists, a budget-conscious Congress
will likely reduce the fighting readi-
ness of our forces rather than elimi-
nate one of the new multibillion-
dollar weapons systems.

It would be no catastrophe for the
free world, however, if we scratched
one or both of the proposed new
nuclear aircraft carrier task forces —
which will cost at least $12 billion
each and more than $600 million to
operate annually — and spent some
of that money on more intensive
combat training. Such a sensible
tradeoff, though, is unlikely as long
as "Cap the Suitcase" holds the top
title at the Pentagon.

THEORY VERSUS PRACTICE

A group of well-known public fig-
ures, including William Simon, ex-
Secretary of State Cyrus Vance and
Commerce Secretary Malcolm Bal-
drige, got together a few months ago
to push a constitutional amend-
ment that would limit the President
to a single six-year term.

The proponents argued that with

such a change, our nation's chief
executive would be thinking more
about what was best for the national
interest than about the next elec-
tion. As one of these worthies put it,
"The President would thereby do a
better job."

We are getting a graphic example
of how well this idea works in prac-
tice with Mexico. A single six-year
term didn't prevent the incumbent
from pursuing unsound economic
policies. It didn't stop him from re-
sponding demagogically to his
country's problems. His nationaliz-
ing the banks was prompted less by
economic necessity (private Mexi-
can banks were very responsive to
government "suggestions") than by
the desire to do something grand,
dramatic, so that he wouldn't be
remembered only as the man who
blew Mexico's oil wealth.

Closer to home, would this coun-
try have preferred a Jimmy Carter
for six years instead of four?

Politics is ultimately people. It's
not unhealthy in a democracy that
pohticos must occasionally respond
to unwelcome pressures.

Our current system is not nearly
so crippling, confining, as some peo-
ple seem to think. Ronald Reagan is
a forceful reminder that much can
be achieved by a President who
knows how to lead — and whose ef-
fectiveness is enhanced by the fact
that he may run again.

FORBES OCTOBER 11. L982

29

Other Comments

Often comments by others stimulate, irritate,
abuse or amuse this editors mind. -MSF

Gung Ho

You know there has always been
an argument over just which branch
of the service is actually the tough-
est, especially if there is a Marine in
the room. Well, I heard a story about
a group of Marines who were sent to
an Army base, for airborne training.
An Army lieutenant briefed these
Marines about the operations. He
told them they were to jump from
their plane at 800 feet and once they
hit the ground they would regroup
and head north. After the briefing,
several of the Marines went to the
lieutenant and asked if the plane
could be lowered to, maybe, 500 feet.
The lieutenant explained that if it
went any lower it wouldn't allow
time for the parachutes to open . . .
to which the surprised Marines re-
plied: "Oh, you mean we'll be wear-
ing parachutes?"

— William P. Clark, National
Security Adviser to the President

Social Security Reform

Social Security's problems are not
beyond solution — and can be fixed in
ways that will not injure those al-
ready retired or soon to retire.

Increase normal and early retire-
ment ages by three years. This
should be accomplished by edging
them forward one month a year over
the next 36 years. This lengthy peri-
od would mean small reductions in
benefits for those getting ready to re-
tire but place the normal retirement

age at 68 about the time the baby-
boom generation starts to join the
ranks of the elderly.

Bring all Civil Service employees
into Social Security. Those workers
who are ten years or more from retire-
ment could be brought in now, the
rest phased in.

— Business Week editorial

TV News

Those who get their news mostly
from TV, as most Americans do, end
up spottily informed. Richard Nixon
says that "television is to news what
bumper stickers are to philosophy."

— Thomas Griffith, Time

Unbelievable

Some federal judges are so busy
shooting drug enforcement officers
in the foot that they've forgotten the
purpose of legal rights. The plight of
Honey, a handsome canine airport
worker, illustrates the point. Her job
is to sniff out nefarious drugs stashed
in luggage by drug runners. But dogs
are such good sniffers that a Califor-
nia federal court recently ruled that
unless officers had already nailed the
suspect, dogs couldn't be used. "The
molecules of contraband emanating
from the interior of luggage are so
subtle and incapable of human per-
ception," ruled the court, "that a
canine's detection of them consti-
tutes an intrusion into the owner's
privacy." Lesson one for Honey: It's

"This is impossible. Let's take the next boat."

not fair to fight drug runners if
you're going to win.

A New York federal court mean-
while added that anyway it's illegal to
seize someone's luggage for the time
needed to get all the papers signed,
even if drug officers had overwhelm-
ingly probable cause to search. Lesson
two: The Constitution means Honey
can't be used because she causes what
the court calls "uncertainty and anxi-
ety" in the drug runner.

— Wall Street fournal editorial

New York is so full of liber-
als that you can get an argu-
ment if you assert that there
are two sexes,

— Mort Sahl

Cautions

An optimist is a person who goes to
a "landmark" restaurant expecting
good food.

— George Lang, in Food e) Wine

That's Life

Representative Barney Frank of
Massachusetts told the American Bar
Association [that] some legislators are
defining life all the time, voting not
only against abortion funding but
against any federal aid aimed for those
who do get born — aid to dependent
children, child nutrition, child care,
school lunches, shelters for battered
kids. As Mr. Frank says, by their defi-
nition, "Life begins at conception and
ends at birth."

— New York Times

Puffed Sleeves at Least?

When a woman's paying $3,000 to
SI 5,000, she doesn't want an ordi-
nary, nothing little dress.

— designer James Galanos, in W

Rotten Squares

Most vegetables now are grown
with an eye toward shelf life rather
than taste. It is very difficult to find a
tomato that doesn't have the consis-
tency of a billiard ball. It's a shame. It
used to be if you heard a particularly
windy politician you could fling a to-
mato at him. It was an old American
tradition. Now if you threw one of the
tomatoes available in most grocery
stores at a politician, you might get
arrested for assault with intent to kill.

— author Calvin Trillin

30

FORBES, OCTOBER 11, 1982

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What's Ahead for Business

Edited by Thomas O'Donnell

LABOR TURNS SOFT

Strikes by railroadmen and pro football players are grabbing
headlines, but don't be fooled: Inflation-boosting labor settlements
will be a rarity during the fourth quarter and early next year. Indeed, in
the manufacturing sector, peace will prevail as strikes become few and
far between.

Forget football-
unions are
running scared

Wage increases
should average
a modest 6%

Consumers have lots
of credit — they just
won't buy

Contract talks will be characterized by concessions from labor
unions, often to keep troubled companies afloat. The recent UAW
decision not to increase demands on a revived Chrysler is a key. Even
at healthy companies, inventories are still uncomfortably high. That's
a major reason the manufacturing sector is operating at 69% of
capacity. Labor leaders are treading softly because at many companies
strikes would be a welcome way to cut costs and reduce inventories.

You can even expect some managements to pressure labor to open
existing contracts and move up negotiating dates on new ones. The
objective is to reduce the impact of mandatory cost-of-living increases
that have become burdensome in a world of low inflation and ongoing
recession. Strikes, if they do occur, will come in the service industries,
which are comparatively healthy. Since the service sector is not
heavily unionized, the impact on the economy will be slight.

Not surprisingly, labor leaders are more realistic. "Unions no longer look
at what everybody else gets and ask for the same, " says Conference Board
labor economist Audrey Freedman. "Wage imitation is shattering."

For the remainder of this year and early 1983, you can expect
settlements overall to average 6% or less. Those lower settlements
mean that consumer spending, the engine expected to fuel the recov-
ery, will continue to sputter. In August personal income rose by a
meager 0.3%, another indication that the recovery won't come any-
time soon. In July, personal income rose by a full 1% because of the tax
cut and Social Security payout boosts. But even then, consumers failed
to increase spending.

Lack of money, however, is not the problem. Consumers have
strengthened their balance sheets and are just too scared or too choosy
to spend (seep. 238). The personal savings rate is now running at 7%;
that's nearly 50% higher than in recent years. "Consumers are capable
of taking on more debt, but have chosen not to," points out economist
Robert Gough of Data Resources.

Unemployment is the big fear. If it goes over 10% later this year, as
widely expected, the psychological impact on those still working but
fearful of losing their jobs will be devastating. "It will eliminate two or
three months of spending activity," says Gough.

The good news that could change all this is a decline in rates. Because
of the soft economy, rates will continue to fall. The question is: How
much? If the drop isn't significant, Christmas retail sales will be the
weakest in years — and the recovery won't begin until early 1983.

_FORRFS nCTORFH II \QH~>

The Forbes Index

Forbes Index

12-month close-up

160-

Current 129.2
Previous 129.3
Percent change -0.1%

125

90

'67 ' '68 ' 69 ' '70 ' 71 ' '72 ' '73 ' '74 ' '75 ' '76 ' '77 ' 78 ' -"> ' '80 ' '81 ' '82

i i i i i i — r-rn — i — i — r

SONDIFMAMJ J A

Another false start. After rising for two consecutive
reporting periods, the Forbes Index has turned down
again. And once more the reason is that consumers have
failed to spend. Consumer credit increased by only $570
million, compared with a $1,349 million gain the pre-
vious month. At the cash register that translates into a
0.9% drop in retail store sales in August, following a

slight rise of 1.2% in July. Consumers were also paying
back borrowings: Debt liquidations are up by 5.1%.

A look to the long term also reveals negative news.
New housing starts fell by 13.1%. That's all the more
disappointing because it follows a 17.6% gain a month
earlier. The story is the same with industrial production
for August, which dipped 0.5% after rising 0.1% in July.

The Forbes Index Components

The Forbes Index is a measure of U.S. economic activity
composed ot eight equally weighted elements: Total in-
dustrial production, new claims for unemployment com-
pensation, the cost of services relative to all consumer
prices, the level of new orders for durable goods com-
pared with manufacturers' inventories, total retail sales,
new housing starts, personal income, the change in the
amount of consumer installment debt outstanding

To measure these eight elements, Forbes monitors 1 1
series of U.S. government data The last 14 months' data
for each series is presented at right.

165

N

150

1 1 1 1 II I 1 1 1

135

Industrial production index 11967100)
Seasonally adjusted IFcdcral Reserve)

350

450

550

I I I I I I I I I I I

Unemployment claims (thousands,
seasonally adjusted [Dept. ot Labor!

1 1 1 1

1 1 1 1 1

1 T

S O N D

F M A M I

) A

150

280

Total index
I I 1 1 111 1 1

240

1

Consumer price indexes 1 19671001

all urban consumers, unadjusted (Dept. of Labor]

1KU

Inventories

140

Orders

100

1 1 1 1 1 1 I 1 1

I

New housing starts thousands!

privately owned, unadjusted (Dept. ot Commerce)

Manufacturers new orders and inventories

(Sbillions! seasonally (Dept. of Commerce

1,520

1 1 1 1 1 1 1 1 1

1,440

1,360

1

Personal income iSbillums! wage and salary dis-
bursements, seasonally adiustcd |Dcpt. of Commerce!

Retail store sales iSbilhunsI

seasonally adiustcd (Dept. ot Commerce!

Consumer installment credit iSbillions!
total, seasonally adjusted (Federal Reserve)

~m i — l — i — | — I I | i i — T

SONDJFMAMJIA

I I I I I I I I I I I I
SONDI FMAMI JA

34

FORBES, OCTOBER 11, 1982

What happens
whenyougoto
work with an

Osborne Personal
Business Computer:

Y)u get more
work done.

Today, the Osborne 1
Personal Business Computer
sells for $1795. Complete.
Including software.

The Osborne is port-
able, because your ideas don't
always happen at the office.

The Osborne is affordable,
so there's no reason to wait.
The Osborne is complete.

Dollar for dollar, no other com-
puter comes close.

The Osborne is easy to
learn, fun to use, and quickly
becomes indispensable.

A visit to your local
authorized Osborne computer
retailer will convince you that
today, more than ever, how fast
you go up depends on which
buttons you are pushing.

For your nearest dealer,
call (in California) 800 772-3545
ext. 905; (outside California) call
800 227-1617
ext. 905.

COMPUTER CORPORATION

The $1795 suggested retail price for the Osborne 1 (a trademark ol Osborne Computer Corporation) includes a lull business keyboard, built-in CRT display, two built-in (loppy disk drives,
CPU and 64 kilobytes of RAM memory, RS-232 and IEEE 488 interlaces, and the following software packages WORDSTAR* word processing with MAILMERGE* (a registered trademark of
MicroPro International Corporation ot San Rafael, California); SUPERCALC® electronic spreadsheet system (a trademark of Sorcim Corporation), CBASIC® (a registered trademark of Compiler
Systems), MBASIC* (a registered trademark of Microsoft), and CP/M* (a registered trademark of Digital Research)

RENAULT ALLIANCE.

NOW THERE'S AN AFFORDABLE EUROPEAN SEDA1
WITH ELECTRONIC FUEL INJECTION,
TWIN AXIAL REAR TORSION BARS,
FOUR-WHEEL INDEPENDENT SUSPENSION AND.

European performance
and handling.

The new Renault Alliance DL.
Powered by an aluminum head
1.4 litre engine with Bendix single
point fuel injection. An on board
computer monitors fuel feed to
provide precise response through five
superbly ratioed gears.

Alliance DL. Front wheel drive
from the world's
all time leader in
front wheel drive.
And an integrated
group of
road -holding
components. Of
course there's
independent
McPherson front
suspension and rack
and pinion steering.
But also an entirely
new twin axial
torsion bar/trailing
arm rear suspension
that's more
efficient

than leaf springs or coils. Fore and aft
stabilizer bars and steel -belted radials
are also standard.

European
engineering.

Alliance DL.
Nearly one and a
half million hours
of development
and testing and over
$200 million invested in American
Motors' Kenosha assembly plant
have produced a sophisticated
small sedan of European breeding
and American manufacture.

Renault has employed
computers extensively
throughout

the design process. First, finite
element analysis improves the
structural integrity and helps part-
weight. Then a UNISURF (uniform
surface) computer probe a
the specifications of the
design model and
translates
them— wit]
a tenth of I
millimeter—
directly to the die that
produces the Alliance body parts.
Finally, the computer-controlled, I
automated Gilman assemblv pr< >q
assures precise and consistent hoc

the first Alliance to the 100,000th.
The result of all this technology is
'ited car that looks as good in the
I tunnel (.39Cx) as it does on the
. How good is that? Good enough
le European version of the
ice to win Europe's 1982 Car of
ear award.

'er appeal and room for five.

ice DL. Proof- positive of
ult's passion for ergonomics,
bio- formed bucket seats on
?d tracks to tilt and recline in
I new ways. An instrument
~> whose every element is in easy
[. And laser-calibrated lines of
for improved visibility.
\ driver's car, yes. But sensitive
ssengers as well. The
ace comfortably seats
vvith extra hip and leg
i provided by a
-hed wheelbase
ie added room
r the
stal front

isingly.

there's separate rear seat heating, so
the people in back can enjoy the
Alliance as much as you do.

Sophisticated options.

Alliance DL. With standard equipment
typical of fine European sedans, and a
provocative array of options:
computer controlled 3-speed
automatic transmission. Power
windows and door locks. Clearcoat

A surprisingly low price.

Such European engineering, precision
manufacturing and fuel economy* is
remarkable. But the real achievement
is this:

Renault «£j
Alliance
starts at

Renault Alliance. The Alliance of
quality and affordability is here. At
Renault and American Motors dealers.

5,595

metallic finishes and halogen lights.
5.5" x 13" cast aluminum wheels.
Even a patented Infrawave Keyless
Entry System, to lock and unlock the
doors from outside the car.

One thing that's never an option:
the exclusive American Motors Buver

52

♦Compare 1983 EPA estimates with
estimated MPG for other cars. Your
actual mileage depends on speed,
trip length and weather. Actual
highway mileage and CA figures will

Vehicle type: 5-passenger front wheel drive 2 door and
4 door sedan

Engine type: Transverse mounted. 4 in line, Bendix

single- point electronic fuel iniection (Bosch
multi point in CA)

Steering Rack and Pinion with Opt. Power Assist

Brakes Power Assisted Front Disc, Rear Drum

Suspension 4-Wheel Independent

Displacement 1397 cc

Wheelbase 97 8 in

Length 163.8 In.

Curb Weight 1945 lbs. 2 dr 1980 lbs 4-dr.

est hwy. probably be lower.

EPA est. MPG

Protection Plan® With the only full
12-month, 12,000-mile warranty that
covers every part except tires,
even if it just wears out. Plus
a five-year No Rust-Thru
Limited Warranty™

RENAULT

American Motors n

'♦Manufacturer's suggested retail price
for the Alliance 2-door. Price does not
include tax, license,

destination charges and
other optional or
regionally required
equipment.

SAFETY J
ISA M

0^1

Forbes

Subsidized competition and rising project
costs. Why the U.S. aerospace industry? is
headed for yet another bloody shakeout.

Dogfight

Buying balance

Key examples among more than 30
friendly takeovers {so far) by Parker
Hannifin Corp. Small and easily
digested, they gave access to new
markets, often outside aviation.

1957

Parker Appliance acquired Hannifin Manu-
facturing Co. (hydraulic and pneumatic cyl-
inders, sales $7 million)

1962

Niehler Maschinenfabrik, West Germany
(hydraulic devices)

/ 1956 J\

1965

Tru-Flate Inc. (quick-connect couplings,
sales S8 million)

1968

Holtech Corp. (precision seals)

V 59% /

1971

Ideal Corp. (auto parts, sales $40 million)

1973

Formed Parker Hannifin Europe, to coordinate
manufacture and sales in Western Europe

1978

EIS Automotive Corp. (auto parts, sales $40
million)

Bertea Corp. (electrohydraulic flight con-
trols, sales $46 million)
Cleveland Wheel & Brake (wheels and brakes
for small aircraft)

/ 1981 \

V 22% / ]

1979

Airborne Manufacturing Co. (fuel pumps and
aircraft air-conditioning)

Percentage of sales in aerospace

1980

Ermeto Armaturen, West Germany (metric
tube fittings, sales $78 million)

By Howard Banks

Tj HE THREE-WAY DUEL of BendlX
versus Martin Marietta ver-
sus— or plus — United Technol-
ogies Corp., following on the heels of
last year's attempted takeover of
Grumman by LTV, signals a signifi-
cant shift that will take place in the
American aerospace industry in the
coming decade: There is going to be
another major shakeout of the sort
that happened in the 1950s and 1960s,
when names like Consolidated Vultee
and Republic Aviation Corp. disap-
peared as individual entities.

There will also be a decline in the
U.S. aerospace industry's share of the
world market and in its importance to
the U.S. economy. In 1960 the indus-
try accounted for 3.4% of gross na-
tional product, 5% of manufacturing
output and around 7.5% of manufac-
turing employment. By 1980 it was
down to 2% of GNP, 3% of manufac-
turing output and 6% of manufactur-
ing employment. Since the aerospace
industry has been the largest export
earner outside agriculture ($13 billion
net in 1980), this could be bad news
indeed for the U.S. balance of trade.

What are the causes of this impend-
ing shakeout? For one thing, Europe-
an governments have decided that
their aerospace industries (which to-
gether make up the largest outside
America-) will not take the backseat
any longer. The Airbus Industrie con-
sortium is one obvious result of this
decision. But there are military exam-
ples, too. It would be cheaper for the
Europeans to buy ready-made Ameri-
can warplanes in many instances, yet
they have decided to develop their
own planes, such as the Tornado
strike-bomber and fighter built by
West Germany, Britain and Italy.

The Japanese are following suit.
They have an industry that assembles
American designs or acts as a subcon-
tractor. Now they have decided to put
up the money to buy a major stake
both in the engine and airframe busi-
nesses. A noteworthy difference be-
tween the Japanese and European ef-
forts is that the Japanese expect their
aerospace companies someday to go

FORBES, OCTOBER 11, 1982

39

off subsidy and turn a profit.

Even the small-fry want to get in on
this business. Buying an airliner they
don't really need and can't afford is
made less painful for small countries
if some work can be gained for their
own infant industries as a condition
of placing the order. In commuter air-
liners, the American manufacturers
have stayed out in the face of subsi-
dized competition from Brazil, Can-
ada, Spain and Northern Ireland. Even
the People's Republic of China has a
commuter airliner that it wants to
sell in the West.

The rising cost of new projects in
this business, civil and military,
means that there will be fewer new
aircraft taken much beyond an initial
study in a computer. And many of
those that are built will be done in a
collaborative way, involving other
companies and countries. That means
fewer new designs for design and engi-
neering teams to work on. Fewer new
projects also means that more compa-
nies will be chasing subcontract work
on those that do go ahead, when they
will also be competing with foreign,
subsidized competitors.

The trouble is, aside from a relative-
ly small contribution from NASA,
American aerospace companies have
to raise their own capital in the pri-
vate market. Washington rarely
comes to their aid with handouts.

It is impossible to guess which U.S.
companies will disappear. A lot de-
pends on which will win which gov-
ernment or airline order. This time
last year Grumman was an obvious
case for a takeover — which is why
LTV went after it. But Grumman was
a prime Navy contractor, and the
Navy (through the Justice Depart-
ment) helped block the merger, on
antitrust grounds. In August Grum-
man was given a ten-year, $2.8 billion
order for 845 F- 14 Navy fighters (sub-
ject to congressional approval), mak-
ing it takeover-proof. It also seems
unlikely that one of the major compa-
nies, like Boeing, Lockheed, General
Dynamics or McDonnell Douglas,
could fall by the wayside. But remem-
ber Douglas: It made a major mistake
by being late on jets for civil airliners
and was taken over by McDonnell in
1967. Much more likely is that the
shakeout will take place among the
second-tier aerospace companies that
are already heavily involved in sub-
contracting or as suppliers.

Those companies that remain will
likely be the stronger ones. That may
mean more diversiiu | ones. There
has been for years a clear trend toward
diversification to minimi : the cycli-
cal nature of governrm nt and airline

orders. Harry Gray's frenetic acquisi-
tions at UTC are an obvious example.
But there are others. Take the $1.1
billion (sales) Parker Hannifin (see
dxirt,p. 39). It was an industrial com-
pany that became dominated by war-
time aviation orders for hydraulics
and almost went broke after 1945. By
a series of acquisitions, some in aero-
space, most in other areas like the
auto business, it balanced its business

and grew. Today only 22% of sales
and 27% of operating income are in
aerospace. By adding in other aero-
space contractors in the same busi-
ness and by taking over an electronics
company, it now dominates the mar-
ket for what are called actuators — the
hydraulic cylinders that respond to
movements of the controls by the pi-
lot. Now Parker Hannifin has 70% of
this business. ■

The picture is fuzzy for smaller, newer cable
TV programming networks. That makes it
even clearer for the industry giants.

The strong
get stronger

By Thomas O'Donnell

When a company raises
prices, it's usually good news
for competitors. But that's
not the way things work in the televi-
sion business. This year the three
commercial networks boosted prime
time rates nearly 18%. The result?
Tough times for ad-supported cable
programmers. With the networks tak-
ing a bigger chunk of corporate ad
budgets, cable got less than expected.

That, combined with the recession,
means the much-talked-about shake-
out of cable programmers is closer
than anybody realizes. CBS already
has shut down its cultural operation,
CBS Cable, because of high costs and
disappointing advertising revenues.
(Actually most cable programmers
would prefer not to accept advertis-
ing. The real money machines are
movie-oriented pay services like
Time Inc.'s HBO, which charge view-
ers a monthly fee.)

With the exception of Ted Turner's
Superstation, major ad-supported ca-
ble networks are in the red. They
include:

• Satellite News Channels. A 24-hour-
a-day news operation run jointly by
ABC and Westinghouse, this bigh-
overhead service has attracted fewer
subscribers than had been hoped. The
format is reportedly being reexamined.

New York O'fi' Ballet on CBS Cable
Death at an early age.

• ESPN. This all-sports network
owned by Getty Oil will lose big mon-
ey again this year. Because ESPN is
available in 15% of U.S. homes, Niel-
sen ratings for the service will be ob-
tainable next year. That could help
sell ads and brighten ESPN's long-
term prospects.

• Christian Broadcasting Network.
This service will also be measured by
Nielsen soon. A spokesman claims
CBN could be in the black by late 1 983.

• USA Network Owned by Time,
MCA and Paramount, this is a mix-
ture of sports, news, specials and day-
time women's programming that
probably best illustrates the future of
cable. It differs little from what is now
seen on broadcast television.

The three other cultural oper-
ations— ARTS, Bravo and RCTV's

40

FORBES, OCTOBER 11, 1982

The Entertainment Channel — also
face uphill battles. But each has some-
thing going for it. Bravo, owned by
Cablevision, and The Entertainment
Channel are pay services that could
someday be moneymakers. And
ARTS has the backing of rich corpo-
rate parents, ABC and Hearst.

Cable's big problem is that, with
the profusion of programs, it's hard for
any one service to lure major advertis-
ers interested in mass markets. This
year, for example, cable advertising
will total less than $200 million, a
pittance compared with the billions
broadcasters will haul in. More im-
portant, cable revenues are well be-

By Barbara Rudolph

Back when he was steering $2.2
billion (sales) Pittston Co. to
record profits, they called Ni-
cholas T. Camicia "Mr. Coal." That
was seven years ago, when Pittston,
ithe nation's largest independent pro-
ducer, was riding high. Profits jumped
ifrom $25 million in 1973 to $200 mil-
lion in 1975.

Now, many of Camicia's competi-
tors are posting surprisingly good
iprofits — but not Pittston. The com-
pany earned only $20 million for the
j first half of this year on sales of $1.3
ibillion. That's down 56% from 1980,
:the last comparable period. Pittston
:wasn't able to cover its dividend last
■quarter, and cut the payout last
imonth. It was the first dividend cut in
company history.

The problem is obvious: Camicia,
iage 66 and the son of a coal miner, who
(rose through the ranks at Island Creek
Coal to become Pittston's chairman,
'profoundly misjudged his business.

He relied too heavily on the metal-
lurgical coal market, which is used in

low earlier estimates of $250 million
or more. "There's just no way 60 or so
ad-supported networks can survive,"
says analyst Barbara Dalton Russell of
Kidder, Peabody.

That's true, but don't be misled.
Some of the newer, smaller cable
programmers are in trouble, but cer-
tainly not the cable operators who
own the wires and send programs
over them. When CBS pulled the
plug on its high-brow service, local
cable systems simply substituted
other fare.

As the weaker cable networks
stumble, the strong get even stronger.
Of course, a few newcomers also may

the depressed steel industry, and gam-
bled on the prospects of selling envi-
ronmentally acceptable coal to utili-
ties, which today is still a hazy dream.

Not all of Pittston's problems are
Camicia's creation, of course. His pre-
decessor's diversifications are floun-
dering. The oil distribution group pro-
duces half of corporate revenues, but
margins are barely 2% and falling.
Then there's Brink's, the security
company, another business in which
profits arc under pressure. Finally, Ca-
micia's attempt to move into noncap-
ital-intensive activities — through the
purchase of Burlington Northern Air
Freight five months ago — now looks
ill-timed.

Pittston's plight goes back to the
late Seventies. As its competitors
were shutting down their met coal
production and digging steam coal
mines, Camicia was plowing $225
million into new facilities that largely
serve the met market. Today there is
domestic overcapacity of some 30%
in met coal and, given the state of the
U.S. steel industry, the domestic mar-
ket might never return.

make it because they have strong fi-
nancial backing and offer products ca-
pable of capturing large but specific
audiences. The best example is MTV:
Music Television, a 24-hour-a-day
rock music service owned by Warner
Amex Satellite Entertainment Co.
and aimed at kids, teenagers and
young adults. Already it is in the
homes of 6.5 million subscribers after
only one year.

Sure, there's a cable programming
shakeout in the works. It will leave a
lot of losers on the sidelines, but the
few winners will win very big. And
the cable operating companies will
make money, no matter what. ■

What's more, the export market is
soft. Pittston's major customer, Ja-
pan— which normally takes 25% of
its U.S. coal imports from Pittston —
is heavily overcommitted. The com-
pany recently shut down eight mines,
two permanently. "It's a very bleak
situation," Camicia admits, predict-
ing growth in the met coal market of
less than 3% a year.

Some of the trouble stems from
"compliance coal," a low-sulfur, top-
quality product that — Pittston hoped
— would be forced on utilities by the
EPA. That didn't happen; instead, reg-
ulators required new utilities to in-
stall scrubbers. While Camicia pre-
dicted two years ago that the compli-
ance coal market would reach 25
million tons annually, he now pegs it
at 10 million tons.

Back when he was excited about
compliance coal, however, Camicia
suggested that some of Pittston's as-
sets might be sold. There was talk,
too, of a joint venture with an over-
seas company. That started takeover
rumors — and the company's stock
price jumped, moving from 18 to 31

Pittston's Camicia

'It's a very bleak situation."

The competition may be doing well — but
not Pittston. Nicholas Camicia s company
is in all the wrong markets.

In the pits
with "Mr. Coal"

FORBES, OCTOBER 1 1, 1982

41

in 1980. Camicia pulled in$741,000 by
exercising a stock option when shares
were close to that year's high. Pittston
shares recently traded at 133A.

Camicia's latest controversial
move was his May acquisition of Bur-
lington Northern Air Freight. Pittston
paid $177 million in cash — borrowed
cash — which most analysts think was
too much. "How can you pay $150
million more than the asset value of a
company?" wonders one industry an-
alyst. This year, and quite possibly for
the next several years, BNAFI's earn-
ings will fail to cover Pittston's inter-
est expense and the amortization of
goodwill.

At best, Pittston seems to have
bought BNAFI near the peak of the
market. Earnings, which averaged
21% growth since 1979, are flat.
What's more, the fundamental goal of
the acquisition — to move into a non-
capital-intensive business — is now in
question. BNAFI, which has always
refused to own its fleet of planes, may
not be able to continue that arrange-
ment, as the freight fowarding busi-
ness grows more competitive. Cami-
cia dismisses that possibility, but ad-
mits that if Pittston had to buy
planes, "I guess we'd do it."

There are credibility problems at
Pittston, too. Critics feel the com-
pany has been less than straightfor-
ward with the investment communi-
ty. Last quarter, for example, Pittston
was hit with $7 million in charges
connected to mine closings. Not only
was this information not included in
the quarterly press release, but ana-
lysts were kept in the dark until sev-
eral weeks after the fact.

One explanation for the confusion
could be the fact that five top execu-
tives have left Pittston over the past
two years. Among the departees were
two executive vice presidents, then
the company's second-highest-paid
officers. Did all the turnover disrupt
management? Camicia doesn't think
so. "The only turmoil was in the
mind of a guy who got fired," he says.

That attitude reflects Camicia's
self-confidence — something that Pitt-
ston's directors have never seriously
challenged. Three years ago they
handed Camicia a seven-year con-
tract, which will expire just before he
turns 70. The board was eager to es-
tablish a plan of succession, and last
year Camicia tapped Hendnk Hartong
Jr., then president of Brink's, to be-
come president and chief operating
officer.

These days the two are reportedly
feuding, even though they deny any
struggle. Industry observers, mean-
while, aren't terribly keen on seeing

Hartong as Pittston's next chairman.
He had no coal experience when he
came to Pittston in 1977, and until
last year he had nothing to do with
Pittston's coal group.

A fresh approach, of course, may be
just what Pittston needs. After all,
Camicia — the former "Mr. Coal" —
has made some major blunders in his
time. ■

By Stephen Kindel

W'hen Grace Kelly married
Rainier III, Prince of Monaco,
she did more than bring her
movie-star glamour to a faded sum-
mer resort for Europe's fading aristoc-
racy. The daughter of a Philadelphia
construction millionaire, Kelly also
brought along a formidable amount of

Not many know it, but Princess Grace
brought much more than mere movie-star
glamour to the kingdom of Monaco.

The fairytale
business

business savvy. Her vision of Monaco
has been so successfully implemented
over the last 26 years that executives
of the Societe des Bains de Mer et du
Cercle des Etrangers (S.B.M.), the
company that owns Monaco's major
hotels and all of its casinos, is serious-
ly concerned about how to carry on
without her.

Ironically, Princess Grace held no
official position at S.B.M.; the state's
ownership of 70% of the stock made
that unnecessary. Her only visible
business role was as a member of the
20th Century-Fox board until that
company's takeover by Denver oil-
man Marvin Davis in 1981. But, say
executives of S.B.M., Princess Grace's
influence on the company cannot be
underestimated. She approved all ar-
chitectural, entertainment and expan-
sion plans. "She created all of the
things people associate with Mon-
aco," says Josiane Merino, a spokes-
woman for the normally reticent
company. Princess Grace's interest in
S.B.M., according to Merino, dated
virtually from the moment of her
wedding, and with good reason. At the
time, Princess Grace's major concern
was that Aristotle Onassis, who con-
trolled most of the company's shares,
might go ahead with his plan to turn
Monaco into a resort on the order of
the Costa del Sol, with its tens of
thousands of low-cost time-sharing
apartments that were rented out to
working- and middle-class northern
Europeans. Perhaps the worst part of
Onassis' plan was that it called for the
abolition of gambling, on the grounds
that working people could not afford

l'rincess Grace of Monaco
"The right kind of people.

42

FORBES, OCTOBER 11, 1982

to lose heavily at the table. This was,
keep in mind, before the days of At-
lantic City. To all of Onassis'
schemes, Princess Grace demurred.
"Monaco," she said, "is one place that
has kept a 19th-century charm ... I
don't think Monte Carlo can ever be a
place for mass tourism. It has always
been glamorous, always for the rich."
The question was how to bring the
rich to town.

So, according to Merino, Princess
Grace took on the role of creating an
ambience. More important than
bringing people to Monaco, she
brought them to S.B.M.: All of Mona-
co's charity balls and glittering social
events were held not at the palace but
at one of S.B.M.'s bevy of facilities,
which includes 3 hotels, 3 casinos,
the opera house, the tennis and golf
clubs, 14 restaurants, 3 discotheques,
2 nightclubs, 3 swimming pools and 1
private beach. All told, this operation
brings in sales that in the fiscal year
ended this July were $90 million, with
profits of $1.8 million. So successful
was Princess Grace at turning Mon-
aco into a year-round resort, says Rob-
ert Tisch, president of Loews Corp.,
which owns one of the casinos in part-
nership with S.B.M., that the hotels
are filled to better than 80% capacity
year-round. Says Merino, "This year
we had a 50% increase in our U.S.
business. That attests to her work."

What it really attests to is Princess
Grace's ability to find new excuses for
the rich to gather. Much of that up-
surge in U.S. business comes from her
conversion of the traditional Bal de la
Rose into the Yellow Rose of Texas
Ball, under the sponsorship of Texas
socialite Lynn Wyatt.

Where does Monaco go from here?
"Fortunately, all of the events for
1983 have already been scheduled,"
says Merino. But the S.B.M. board
must find a way to keep the high
rollers coming without the glitter and
the business counsel Princess Grace
provided. Even before her sudden
death, there were hints that all was
not well in the magical kingdom. Ber-
nard Combemale, who was brought in
from INA of Philadelphia to upgrade
S.B.M.'s management in 1978, has de-
serted the ship and has been replaced
with Andre St. Mleux, longtime min-

l ister of state and a crony of Rainier's.
And, there were too many high-rise
apartments built, says Tisch. That was
tolerable while Princess Grace was

[ alive. But with her passing, the people
who run S.B.M. will have to find a new
grace note. Otherwise, Monaco will
become just another expatriate tax ha-
ven. And the fairytale business won't
end happily ever after. ■

Is Britain s rich BAT (British American To-
bacco) simply throwing money at U.S. re-
tailing, or is it building an attractive and
consistent diversification?

"We are
satisfied"

By Rosemary Brady

F| or the first time in eight
years, each of the four divisions
that make up the 38-store Gim-
bel Bros, chain made a profit last year.
It wasn't a big profit, mind you. None-
theless it was still significant in the
eyes of Patrick Sheehy, 52, the new
chairman of the $17.6 billion (sales)
BAT Industries.

The world's largest tobacco manu-
facturer, London-based BAT has

RAT's Patrick Sheehy lights up
"Ten years isn't long in a new business.

struggled with Gimbels since 1973,
when it paid $200 million for the de-
partment store chain, plus the much
more appealing Saks Fifth Avenue
network. So when operating income
jumped 40% for Gimbels last year,
against a 5.6% increase in sales,
Sheehy felt some sense of accom-
plishment. Although he has spent
most of his 32-year BAT career mar-
keting tobacco, Sheehy joined the
main BAT board in 1970— one year
before the company (then still known
as British American Tobac-
co) made the first of several
forays into the tough busi-
ness of retailing.

"We are very satisfied with
the progress we've made in
retailing," says Sheehy, puff-
ing calmly on a State Design
555 cigarette in his quiet of-
fice, lined with modern
artwork, near Westminster
Abbey. Evidently, for BAT
plunged deeper into U.S. re-
tailing with the April pur-
chase of the Marshall Field
chain for $365 million.

Field looks like more trou-
ble. Expanding wildly in the
last four years — mainly to
ward off a takeover attempt
by Carter Hawley Hale
Stores — it has watched net
profit margins fall as sales in-
creased, to $1.2 billion in
1981. Earning just 1.9% on
each sales dollar, the Field
chain falls far short of the 4%
to 5% standard for successful
department stores. Dean
Witter Reynolds analyst Ter-
ence McEvoy thinks it will
take BAT "at least three to
five years" to improve Field
substantially.
What kind of diversifica-

tion is that to be satisfied with? With
net income increasing fourfold in the
last ten years to $693 million in 1981,
its dividend more than tripling in the
same period, is BAT an example of a
company with too much cash and too
little to do with it?

Not at all, says Sheehy, who joined
BAT in 1950 after a stint in the Irish
Guards and made the final step up to
BAT's chairmanship on Oct. 1. "Our
strategy is working. Ten years is not
too long when you arc going into a
new business. It even took us 12 or 13

years to get something out of Brown
& Williamson when we first started.
You just can't turn things around
overnight."

Brown &. Williamson, of course, is
BAT's U.S. -based tobacco subsidiary
(Kool, Raleigh, Belair, Viceroy and
Barclay cigarettes) with 13.9% of the
market. Elsewhere BAT enjoys 80%
of the Brazilian cigarette market,
28% of the German market and a
growing export and duty-free trade.
In all, tobacco brings BAT $10.1
billion of revenues and $896 million

of its $1.2 billion operating profits.

Its retail operations, therefore, ■
must be looked on in the context
of a giant cigarette maker's overall
strategy for diversification and
growth. Like many of its rivals,
BAT decided to branch out from its
profitable mainstay in the 1960s,
going first into packaging, paper
and cosmetics. Paper remains the
largest of those preretaihng ven-
tures, now making up 13% of
BAT's $7.89 billion in assets. But in
dabbling in cosmetics, with Brit-
ain's Yardley and other companies, I
BAT was following the pattern set
by other tobacco companies — R.J.
Reynolds and American Tobacco in
the U.S., Imperial Group in Britain
(see box) — making acquisitions in
many fields, seeming to cast about
for something to settle on. Its board
of directors had even ruled out al-
cohol, the favorite diversification of
Philip Morris (Miller Beer) and Im-
perial (Courage brewery), because it
was "another indulgence," one pos-
sibly subject to controversy.

But retailing was no bolt from the
blue. "I can't recall precisely why we
went into retailing at the time," says
Sheehy, squinting up at the ceiling, as
if looking for an answer. "If you're
talking about department stores, we
started out with a minority share-
holding in Germany."

It was not until 1971 that BAT
made what Sheehy calls the "strategic
decision" to encourage the holding
companies of its widely diversified
group to move decisively into retail
food and department stores.

What did the tobacco company see
in the difficult trade? Sheehy: "We
wanted to go into a business that
was close to the consumer, because
we thought we had had success sell-
ing consumer packaged goods — ciga-
rettes. We had looked at food but we
had been through . that with Vita
Food in the U.S. and that experience
had not been rewarding. Retailing
seemed more of a growth business.
You could get into it and buy a siz-
able business and still have only a
small part of the market, so that you
could expand."

That is exactly what BAT did, first
purchasing an 80% share in Wiscon-
sin's Kohl Corp. for $72 million in
October 1972.

The original idea, he explains, was
to purchase Kohl, "a core, quality
business," and learn the ropes on a
small scale. But when the opportunity
to buy Saks arose a year later, BAT
couldn't hold back. Saks represented
quality. It was well managed and in
good shape. And, despite the fact that

This little piggy stayed home

Hello, boys, I'm Buck
Duke from New
York, come to buy your
business!"

It was 1901 and the
speaker was the brash
North Carolinian, James
Buchanan Duke, founder
of the vast, monopolis-
tic American Tobacco
Trust. Duke, who later
became the first chair-
man of BAT (see story),
had arrived in England to
buy out its cozy, family-
owned tobacco business-
es. But he was not polite-
ly received. In fact, 13
British tobacco companies joined
forces to combat Duke, forming
Imperial Tobacco, which still con-
trols nearly 50% of Britain's ciga-
rette market. They fought Buck
Duke's fire with fire. Or, at least,
they did come up with their own
fight song, to the tune of "Rule
Britannia":

"We'll not encourage Yankee
Bluff,

We'll support John Bull with ev-
ery Puff."

Out of this colorful international
battle arose British American To-
bacco, for which Duke arranged a
neat market-sharing agreement: As
long as Imperial stayed out of the
U.S. and overseas markets, BAT
would stay out of the U.K. That
agreement lasted until 1972, when
Britain's entry into the Common
Market disallowed it.

BAT, as we know it, went on to
become the world's largest tobacco
manufacturer. How did Imperial
fare? Helped by the special market-
sharing agreement and its initial
dominant position in the U.K., Im-
perial flourished until the early
1970s. But since 1973, cigarette

Imperial Tobacco Chairman Geoffrey Kent

volume has declined steadily.
Meanwhile, in diversifying, Impe-
rial seems to have tried a little of
everything, from potato chips to
poultry to beer to Howard John-
son's, one of the U.S.' less-than-
exciting restaurant groups.

Imperial has not fared well with
many of its diversifications and its
new chairman, Geoffrey Kent, 60,
who has headed both the Player
tobacco and Courage brewing sides
of the company, has been selling the
underperformers off. He has held
on to Howard Johnson's, launched
a major recovery program — earn-
ings are up strongly this year — and
shareholders are awaiting his deci-
sion on where to reinvest funds
from the sale of assets.

Kent, who once worked for John-
son & Johnson, has also done
something else that may indicate
why tobacco companies so often
have trouble succeeding in other
fields. He has declared internal war
on the "tobacco culture," as he
calls it — the reliance on compara-
tively easy tobacco profits that
takes the competitive edge off a
businessman. — R.B.

44

FORBES, OCTOBER 1 1, 1982

Saks came with neglected Gimbels, it
came fairly cheap.

But it was Gimbels that taught BAT
about retailing. Not only were the
stores run down, the fashions seemed
stuck in the Dark Ages. ("They were
not contemporary," Sheehy sniffs.)
Competitors like Macy's in New
York and Bamberger's in Philadelphia
had taken away some customers,
while discount stores had taken oth-
ers. As a newcomer to the field, BAT
(and its manager, Brown & William-
son) didn't know enough about retail-
ing to assess its managers: They came
and went at a rapid rate for the first
few years, as they tried pushing Gim-
bels upmarket (which didn't work)
and pulling it back down again. Final-
ly, BAT got successful managers from
Saks to lend a hand. They decided to
gear Gimbels to the low and middle
income, the very market Macy's had
departed.

Looking back on BAT's Gimbels ex-
perience, Sheehy says the company
relearned "that you really have to be
able to identify and attract the very
best management." Tobacco men, he
adds, well understand the need for
financial discipline and planning, but
they know absolutely nothing about
merchandising fashions or selecting
store locations.

Of course, Saks was different. The
tobacco group's cash flow ($948.8 mil-
lion last year) has served Saks well.
Through an aggressive expansion pro-
gram, BAT has spread the Saks name
across the U.S. Plans released in 1979
projected Saks' turnover to double to
$1 billion within a decade. Henry Fn-
gon, executive vice president of BA-
TUS in Louisville (the holding com-
pany for BAT's U.S. retailing inter-
ests), calls Saks "one of the great
retailing success stories in recent
years."

As BAT spread the Saks name, it is
now prepared to do much the same
with Marshall Field. Sheehy likes the
look of the company to begin with.

The company's main problem, as
he sees it, boils down to financing, not
retailing: "Quick acquisitions put a
heavy borrowing on the balance
sheet, and interest payments quickly
offset any improved performance."
With BAT's money behind it, the
company will be able now to concen-
trate on retailing.

The lesson in all this for other di-
versifying companies is that BAT,
through patient effort, has accumulat-
ed a growing, attractive and profitable
retailing group — $126.8 million pre-
tax in the U.S. last year. Marshall
Field, analysts estimate, will add $25
million pretax this year. The com-

pany found one business, paid the
dues to learn it, and now looks for-
ward confidently to growth, long
term, in another business it knows.

Sheehy admits BAT's retail inter-
ests are not immune to the recession
and predicts results will not quite
keep pace with last year's 44% rise in
operating profits in the U.S. But, over-
all, he is confident BAT will raise
nontobacco earnings from the present

level of 26% of BAT's total to 40% by
1990 — with no slacking off envi-
sioned for tobacco.

In contrast to conglomeration or
many of the purely "financial" acqui-
sitions that pass for management de-
cisions these days, BAT's diversifica-
tion looks like a quality job. Sheehy
sums up: "We've got real prospects for
growth," he says, "not merely the
need to buy something." ■

By Jeff Blyskal

For years, Americans couldn't get enough
Big Macs and Whoppers. But today that
may no longer be the case.

The burger boom
slows down

chains' steady capture of customers
from the local malt shops.

Now the market has been gobbled
up. "There are very few independents
left to put out of business," says
Denny's CEO Vern Curtis, "so now
the chains will have to work on each
other for the same business, and that
can get pretty bloody."

Saturation, of course, is a dirty word
in any industry, but the evidence is
clear that there may indeed be too
many fast-food restaurants chasing
too few customers. McDonald's sales
per restaurant in the U.S. zoomed
from $464,000 in 1972 to over $1 mil-
lion last year — figures that look pretty
good. But account for food-away-
from-home inflation, and McDonald's
real sales per unit — an indicator of
customer volume — have actually fall-
en since 1976. "Over the last five
years, McDonald's has raised prices
11% per year and lost about 4% of its
customers per store per year," says
Bache analyst Mike Culp.

McDonald's, which refused to dis-
cuss the matter with Forbes, is not
alone. Real sales per unit have been
dropping at Pillsbury's Burger King
since 1975 — let alone at such chains
as Sambo's, now in Chapter 11, and
Gino's, acquired this year by Marriott
to be carved up into Roy Rogers res-
taurants. "Average unit volume is

J^FTER TWO HEADY DECADES of ex-

A^pansion, the $10 billion fast-
mm ^Lfood hamburger business is
headed for trouble. "Hamburgers are
still our basic item," says David
Thomas, founder of Wendy's, number
three in the industry (behind McDon-
ald's and Burger King). "But we're not
going to see the same growth coming
from them as we have in the past."
Thomas says hamburgers are now
40% to 45% of sales, compared with
60% in 1978. Industrywide, orders for
hamburgers at fast-food restaurants
have declined more than 10% over
the past three years, according to the
National Restaurant Association.

Why? One reason is sharp beef price
rises in 1979 passed on to hamburger
eaters. But on top of that, "A diet of
hamburgers, french fries and milk
shakes just no longer satisfies the fast-
food consumer," says Jack Goodall,
president of Ralston Purina's 800 Jack
in the Box restaurants. Per capita con-
sumption has not grown as much as
you may think: At 19 pounds of ham-
burger for every American per year, it
is only 10% higher than it was in
1971. Compare that with increases
over a similar period of 20% for chick-
en and 24% for fish. The burger boom
was really caused more by the big

probably the most important statistic
in this business," says Denny's Cur-
tis, who has watched his per-unit vol-
ume recover recently after a nose dive
in 1979 and 1980. "When it's falling,
it indicates declining productivity
and a drop in customer acceptance."

Meanwhile, return on equity for
most players in the fast-food industry
has been trending steadily downward
since the mid-Seventies. At Chart
House, which operates 96 steak
houses and 264 Burger King fran-
chises, ROE is down from 24.3% in
1976 to 20% last year. Wendy's ROE
is down from the chain's boom-
growth years' peak of 40.4% in 1975
to less than half that today.

The big burger chains have been
trying to meet the problem with
menu diversification. Since 1979
Wendy's and Jack in the Box have
added chicken sandwiches and salads;
Hardee's, ham and cheese sand-
wiches; Burger King, veal parmigiana
and chicken sandwiches; and McDon-
ald's, processed chicken and barbe-
cued pork items.

While real sales industrywide are
up slightly so far this year, it looks as
if stiff competition is here to stay.
That will be expensive. For one thing,

television advertising by the top 15
fast-food chains was up 28% in the
first half of 1982, and there are even
more costly expenses not at once ob-
vious. Hamburger chains, built on the
idea of moving one item in volume,
cannot expand their menus too much
without losing efficiency. "You have
to tread a fine line," says Goodall,
"because you have to move large
numbers of customers quickly to
make a good return on your assets."
Adds Culp, "The specialty sand-
wiches have not been very successful
in drawing new customers — not even
for McDonald's — but rather have giv-
en an alternative to people who are
sick of eating hamburgers. Whatever
incremental new business they have
brought in is certainly not worth the
higher investment."

With ever-increasing costs of open-
ing new outlets — an average $300,000
per Wendy's unit in 1969 vs. twice
that today — the resultant slowed ex-
pansion rates have forced burger
houses to increase plant utilization in
other ways, too. In addition to break-
fast, the fast-feeders are considering
full dinners. Wendy's, for example, is
test marketing five entrees in Cincin-
nati— beef and mushrooms and chick-

en parmigiana among them, with a
potato and salad. But here, too, there
are problems. "It's going to be diffi-
cult for fast-feeders to attract dinner-
time traffic," observes Gerald Office,
chairman of Ponderosa, a budget steak
house chain. "They're trying to utilize
existing food items that are only
dressed up differently, served on Sty-
rofoam plates and with no table ser-
vice." Indeed, even McDonald's has
yet to come up with a dinnertime item
after the recent failure of its steak
sandwich available in many locations
only between 4 p.m. and 6 p.m.

The fundamentals of fast food per se
remain sound. Recession or no, people
are still eating away from home in in-
creasing numbers. In fact, hard times
can prompt a family to forego dinner at
a table-service establishment in favor
of a more affordable Big Mac. Says
USDA economist Mike Van Dress,
"There are still all kinds of opportuni-
ties out there." For example? The fast
seafood business has great potential,
says Bache's Culp. "With Arthur
Treacher's falling out, Jerrico [Long
lohn Silver's Seafood] and Shoney's
[Captain D's] will be able to make
money hand over fist." But the ham-
burger, star of the show, has peaked. ■

McDonald's golden arches, circa 1978

Too many fast-food, restaurants industrywide chasing too few burger-bored customers?

46

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Productivity is more than robots and fast
assembly lines. It's also finding new ways
to put goods in the hands of customers.

Dollars
from doodads

By William Baldwin

OST WHOLESALERS ARE face-

less, unimaginative order-
takers eking out 1% profit
margins. The right entrepreneur,
however, can turn distribution into a
glamour business with growth rates
and returns on equity reaching 20%.
Look at Lawson Products
Inc., which has found a way
to clear 9% net profit mar-
gins on spare parts, by spar-
ing customers valuable
time. Or W.W. Grainger
Inc., which has become a
Sears, Roebuck of industri-
al supply, marketing every-
thing from grommets to
hot-tub pump motors.
Then there's Vallen Corp.,
a seller of safety equip-
ment, which is finding
ways to save its customers
the cost of maintaining
stockrooms.

What these companies
and others like them (see
table, p. 56) know is that the
cost of industrial supplies
just begins with the price
tag on the item. "The dollar
you spend on the invoice is
the tip of the iceberg," says
William O'Connell, presi-
dent of Vallen. Beyond this,
there are the salaries in the
purchasing department, the
paperwork in accounts pay-
able and the cost of discard-
ing obsolete stock. Helping
customers minimize ex-
penses like these is how
good distributors can earn
their keep.

In fact, smart suppliers
and other service-sector
firms must provide most of

the economy's future productivity
gains. The reason is simple arithme-
tic: Manufacturing is already so auto-
mated that it employs only one out of
five workers. A year ago wholesale
and retail trade overtook the manu-
facturing sector in total employment,
and the lead is widening. That leaves
plenty of room for efficient distribu-

Packaging
The nuts

crimp terminals at Lawson Products
and bolts of the business is convenience

tors to supply themselves with hand-
some profits.

Lawson Products:
"A fastener program"

The 1,100 Lawson salesmen on the
road pushing 1 7,000 different replace-
ment parts don't talk price, they talk
quality and convenience. Customers
don't buy nuts and bolts, but a "fas-
tener program." That means hard-
ware of a higher grade than usual,
kept in Lawson parts bins, each neatly
labeled and periodically restocked by
a Lawson man.

"We don't claim to be the cheap-
est," says Sidney Port, 71, founder (in
1952) and executive committee chair-
man of the Des Plaines, 111. company.
"Our products go into big pieces of
equipment. Whether they pay a few
cents more for a tiny part doesn't
make a bit of difference." Except to
Lawson, which earned just over $10
million last year on $110 million in
revenues.

This labor-intensive selling scheme
yields savings for Lawson customers
like Steve Stevens, head of mainte-
nance for a school district stretched
over 186 square miles northwest of
Houston. He seems to be
paying a stiff price: $12.64 a
box for one style of wood
screw, for example, quoted
at $4.53 at a screw wholesal-
er in the city. Trouble is, this
wholesaler is 20 miles away
and happened to be out of
that particular style when a
reporter called.

Lawson, by contrast, ships
from five regional ware-
houses, each well enough
stocked to boast 99% order
fulfillment. For Stevens, the
arrival of the Lawson sales-
man has meant more time
for his carpenters to fix
broken school windows.
"Before, they were buying a
few screws here and a few
there and leaving them
around in bags, " he says. "It
would take them an hour to
get to the hardware store and
back."

Lawson knows about
conventional productivity
gains, too. Automated parts
counters gobble screws
from kegs and feed them
into prim Lawson-yellow
boxes, at which point
they're marked up an aver-
age 240% and sent by UPS
to customers. Although a
majority of its parts carry
the Lawson brand, none are
manufactured in-house.

FORBES, OCTOBER 11. 1982

51

Louisiana
W>rks.

Labor. Skilled. Trained. Trainable.

It's a major consideration
when choosing a plant location,
one in which Louisiana can
give you a lot of help. Help in
conducting labor availability
surveys. Help in screening and
recruiting a work force. Help in
the training of your new workers
to your specifications and
standards. And Louisiana's help

includes picking up the tab so all
of this is free to you.

In Louisiana you'll find
trainable labor, including a large
female work force, in both metro
and rural areas. And wherever
you locate you'll find that
Louisiana workers work hard,
with a value added record of
productivity that is 46 per cent
above the national average.

Write for our free report:
LOUISIANA WORKS
Louisiana Office of Commerce & Industry
P.O. Box 44185, Dept.B4
Baton Rouge, LA 70804

Name

LOUISIANA

WORKS

Title

Company
Address _

10-Year Tax Exemption • Energy

Revenue Bond Financing

Enterprise Zones • Training Programs

City/State/Zip

Will Lawson try that soon? Not
likely, since that may be why earn-
ings per share have climbed 620%
over the past decade. Manufacturing
is always vulnerable to foreign in-
roads. First-class service is not.
Vallen Corp.:
Vendor stocking

Back in 1947, Leonard Bruce, then a
27-year-old Chicago goggles sales-
man, set off in search of a new terri-
tory. He landed in Houston and pros-
pered mightily. The Vallen Corp. he
founded and still presides over netted
$2.4 million on $37 million (sales) in
its fiscal year ended in May.

Bruce owes some thanks to growth
in the postwar petrochemical indus-
try and to ever-tighter job-safety regu-
lations. But his would probably still
be just another small, family-run in-
dustrial supplier if not for a special
emphasis on making things conve-
nient for customers. Vallen broadened

W.W. Grainger's "motor-
book" advertises bits, bolts,
sheaves, shelves, solder, so-
lar water heaters, self-extin-
guishing garbage cans and
mop wringers. Why? To save
a repairman a costly side
trip. And to make it easier
for Grainger to Jill its truck
trailers.

its product line as fast as finances
permitted, so that plant safety direc-
tors could do all their ordering from
one salesman. Today the company
handles 6,000 items, from acid hoods
to vapor sniffers.

Vallen has found other ways to
streamline distribution. In 1974 it
won an account at Dow Chemical's
Freeport, Tex. complex under what
Dow calls its "vendor-stocking pro-
gram." This lets Dow dodge most of
the costs of keeping a stockroom,
shopping by phone and scrambling for
out-of-stock items. Instead, when a
plant manager needs 12 hardhats he
keys that request into a computer sys-
tem with a terminal at Vallen's Free-
port branch. Vallen agrees to main-
tain enough inventory on 250 items to
answer 95% of requisitions immedi-
ately, and Vallen trucks deliver to
Dow every two hours. Vallen also ac-
cepts slightly lower than usual prices
under the Dow contract. In return, it
gets a large account and payment
within ten days.

Vendor stocking can work only at
large plants — the Freeport chemical
complex is the western hemisphere's
largest — so Vallen is working on

52

Sony mixes business with pleasure.

Sony announces a suc-
cessful merger: the TCS-310.

It'll take your dictation just
as well as it plays your favorite
music.

This Sony comes
with two built-in stereo
microphones and has
metal tape playback
capability. So both
symphonies and statis-
tics will sound great
through its feather-

weight stereo headphones.

If you want to pack an
even smaller Sony there's the
M-1000.

It fits in your shirt pock-
et. Yet it records and plays
back in stereo on a micro-
cassette.

It also features the
adjustable MS stereo
microphone. Set it one
way for a conversation
and another way for a

convention. Either way you'll
get a clean and precise record
ing with good stereo separa
tion. The Sony
TCS-310 and
M-1000. They
make mixing
business with
pleasure a
pleasure.

THE ONE AND ONLY

1982 Sony Corporation of America Sony is a trademark of Sony Corporation Models shown TCS 310 and M-1000, with MDR-1L1 headphones MDR-1L1 headphones supplied with TCS-310 and M-1000

"THE PRICE IS RIG
BGOLDETI."

Car and Driver magazine tested our '82 Chevrolet Caprice. Three differei

editors. One unanimous opinion:

" America's finest example of big car." — Larry Griffin

"Most European and Japanese drivers would marvel at this car's velvety

ride Rich Ccppos , ,

• if

V

!

■

no its REPunmon

■

■ ■

D DRIVER JULY 1982.

'The Caprice is the very essence of the fussless, imperturbable container that
cs up endless stretches of these United States . . ."—Larry Griffin

I If you'd like to know what America's carmakers have been up to . , , you
it to yourself to drive an F41 -equipped Caprice — or any Caprice for that
ler." — Rich Ceppos

Middlemen make money, too

These companies make wholesaling look easy. Leonard
Bruce started his Vallen Corp. at the age of 27 with
$5,000 in savings and $2,000 in consigned goggles. G.B.
Van Dusen, now 68 and chairman of the company
bearing his name, was 26 when he borrowed $300 for
some parts and opened shop in a Minneapolis airport

terminal. But the nice returns vanish if manage-
ment does not rapidly add new product lines and
accounts and kill slow ones. NCH's return on equity
is half what it was a few years ago. Thanks to the
recession, Van Dusen's earnings per share have
tumbled from $1.76 in fiscal 1980.

-1981-

-Earnings per share

Revenues

Net profit

Return on

latest

10-year

Recent

Price/

Company //jroducts

(millions)

margin

equity

12 months

growth rate

price

earnings

Aceto Chemical/chemicals1

$ 91

3.4%

13%

$2.67

24%

15%

5.9

American Hospital Supply Imedical

2,870

5.1

15

2.22

14

38

17.0

WW Grainger/wo/o/s, misc

867

6.5

18

3.91

17

44

11.3

Lawson Products/fasteners

110

9.2

22

1.94

21

24lA

12.5

NCH/bldg main/ supplies2

348

4.3

9

1.25

14

15

12.0

Premier \n&\isti\d\l fasteners, electronics*

340

10.2

23

1.66

19

24'/2

14.8

Vallen/s«/t>(r equipment3

37

6.4

19

1.58

304

15

9.5

Van Dusen Air/ 'aircraft parts5

143

2.2

9

0.91

18

9%

10.7

'Year ended 6/30/82 ^Year ended 4/30/82. *Year ended 5/31/82. 4Five-vear growth rate Vear ended 3/31/82.

smaller variations. It is negotiating to
set up safety equipment stores inside
customers' plants, staffed by part-
time workers who have retired from
jobs at those same plants. What Val-
len is really selling, then, is a way for
its customers to cut stockroom staff.
With ever-rising labor costs, that's a
strategy that can't miss.
W.W. Grainger:
Fast turnover

Grainger calls its 1,092-
page catalog the "motor-
book" because of a heavy
dose of electric motors, fans
and blowers, some of which
it manufactures. But for
this $867-million-a-year
company, making motors
has proved far less lucrative
than distributing them —
along with a lot of other
things. That's why Chair-
man David Grainger, 54,
son of the man who found-
ed the firm in 1927, de-
scribes his business this
way: "Having the right
thing in the right place at
the right time."

And what a collection of
things. The motorbook ad-
vertises bits, bolts, sheaves,
shelves, pillow blocks,
posthole diggers, solar hot-
water heaters, self-extin-
guishing garbage cans and
mop wringers. Why does a
motor distributor sell mop
wringers? Why not, if that
saves a maintenance work-
er a side trip? Signs at
Grainger's 165 stores warn

WHOLESALE ONLY, but this

is really a retail business,
with a $111 average sales
ticket. The typical custom

er is a hurried repairman who comes
for a replacement motor — and who
may, while he's at it, pick up a $9.65
pound of solder that he could have
gotten for $6.20 at a plumbing shop.
Time is money.

There's another side to this mass-
merchandise approach. Grainger's

Automatic storage retrieval at W.W. Grainger
"The right thing in the right place."

line of 9,800 products and 24,000 parts
has reached a critical mass that keeps
shipping costs down. All merchandise
is gathered through 1.6 million square
feet of warehouses near its Skokie, 111.
headquarters. (This hub will be dupli-
cated with a 1.4-million-square-foot
building to open in Kansas City this
winter.) There it is arranged
into assortments shipped at
least weekly, in full truck-
loads, to the stores. With
less volume, Grainger
would have to settle for
half-filled trucks or less-fre-
quent deliveries. The week-
ly deliveries in turn enable
branches to satisfy buyers
without holding huge in-
ventories of their own.

Altogether, the company
turns over its distribution
inventory 3 times a year.
That doesn't sound like
much, but remember that
Grainger is straddling two
levels in the distribution
system. The alternative is
hardware jobbers gathering
merchandise from the man-
ufacturers and dispersing it
to local industrial-supply
houses. If jobber and suppli-
er both turn inventories 4
times a year, their combined
turnover rate is only 2.
That's why the competition
seems to be losing ground:
Grainger has quadrupled
sales over the past decade,
while getting long-term
debt down to 4% of total
capital and rarely letting re-
turn on equity dip below
17%. Many a high-produc-
tivity manufacturer would
be lucky to do so well. ■

56

FORBES, OCTOBER 11, 1982

PI 1

Mystic Seaport by Alfred Eisenstaedt

America meant a new start. And the men who
landed here started a world with new goals, new customs,
even a new whiskey. Old Grand-Dad still makes Kentucky
Bourbon, the only truly American whiskey, just the same
as we did in 1882. It's the spirit of America.

For a 19"x26" print of Mystic Seaport, send a check
or money order for $4.95 to Spirit of America offer, P. O. Box 183M,
Carle Place, N.Y. 11514.

Old Grand-Dad

Kentucky Straight Bourbon Whiskey 86 Proof Old Grand-Dad Distillery Co . Frankfort. KY©1982 National Distillers. Inc.

Sysco Corp. charges a little more, and
makes a little more, than other food distri-
bution companies. How?

"Don't sell food,
sell peace
of mind11

By Anne Bagamery

Why is $1.7 billion (sales)
Sysco Corp. more profitable
than almost any of the other
2,000-odd firms in the $55 billion-a-
year business of wholesaling food to
restaurants and other institutional
servers? A favorite company anecdote
tells this story:

Preparations for a lobster roast at
Houston's toney Inn on the Park were
going smoothly until the chef noticed
unexpected guests and found he was
ten lobsters short. At 5 p.m. on a
Saturday, where was he going to find
fresh lobsters? Panic-stricken, the
chef called his Sysco representative at
home. The salesman jumped into his
car, drove to a gourmet store that he

knew would be open until 6 p.m.,
bought the lobsters and delivered
them to the hotel. He even slapped
them on the grill himself.

Chairman John Baugh, who has
worked 35 years in food distribution,
drives home the point: "The typical
food service company picks a case of
frozen french fries out of the ware-
house and dumps it on the restau-
rant's back porch. Where's the skill in
that? Where's the creativity? Our peo-
ple don't just sell food — they sell
peace of mind."

If Baugh sounds a little like an IBM
salesman promising worry-free com-
puting, well, the parallel is apt. Hous-
ton-based Sysco maintains an army of
some 2,200 "marketing associates"
(Baugh's words). Two-thirds of that
army are salesmen whose job is to
assure Sysco's 90,000 nationwide cus-
tomers that 98% of the items they
order will be delivered on time. The
rest are product specialists, prepara-
tion specialists and customer-service
representatives who do everything
from preparing restricted-diet menus
for hospitals to explaining how to
hold stuffed peppers through a two-
hour luncheon buffet.

Naturally, this handholding isn't
free: Sysco is usually the highest-
priced distributor in the market. And
it isn't for everyone: A burger joint
that needs only a handful of items and
no advice will tend to go elsewhere.
But the willingness of Sysco's cus-
tomers to pay for convenience means
that Sysco can post a net margin of
2%, well ahead of its top competitors'
average of 1.5%. Sysco's revenues —
the industry's largest — have been
growing 18% a year for a decade,
largely because of acquisitions of lo-
cal food distributors. But its earnings
for the same period have increased
22% a year. Earnings per share have
grown at a compound annual rate of
18%, to $1.71 in the fiscal year ended
july 3. Return on equity has averaged
16.5% with moderate leverage — debt
hovers around 25% of total capital.

Achieving that kind of growth
means walking a fine line in a busi-
ness where slow food-price escalation
and -stiff competition chip away at
potential profits and labor costs eat up
10% of sales. But Baugh, 66, has Presi-
dent John Woodhouse, 51, handling
the finances for Sysco — the name is a
contraction of Systems &. Services
Co. — which today has 69 distribution
centers in 45 states serving 1 16 of the
top 150 metropolitan areas. Wood-
house, a onetime financial man at
Ford Motor, keeps receivables down
to 24 days' sales — where the industry
norm is around 35. Sysco headquar-

President Woodhouse and Chairman Baugh in a Sysco test kitchen
Keeping too many cooks from spoiling the frozen beef stew.

58

FORBES, OCTOBER 11, 1982

ters must approve all subsidiaries'
presidents' salaries, major expendi-
tures and borrowings. Salesmen work
on commissions that are set locally,
based on the profitability of each or-
der, which may be based on dollar size
and frequency of delivery as well as
gross profit.

Sysco started life in 1970 when
Baugh — then president of a Houston
company called Zero Foods — and
eight other regional distributors de-
cided to centralize finances, the better
to expand and modernize. Their tim-
ing couldn't have been better, as eat-
ing away from home became a growth
industry in the 1970s.

Now, however, with Americans
spending less to eat out, Baugh and
Woodhouse are looking for other
ways to keep Sysco growing. In Febru-
ary 1981 they set up Compton Foods
in Kansas City to purchase meat and
move the Sysco 15,000-item product
line into the so-called center of the
plate — the meat and prepared entrees
that constitute 50 cents of every food-
service dollar. Sysco had shied away
from meat previously because Baugh
and Woodhouse thought the subsid-
iaries could not control quality or get
good prices from meatpackers accus-
tomed to selling huge lots to super-
market chains.

But with Sysco's current size,
Compton can buy in truckload and
boxcar lots from Iowa Beef or Swift &
Co. and therefore is able to negotiate
on price. Also, as a good customer,
Compton gets the right to send its
own inspector into the meatpackers'
plant to check quality. Compton con-
tracts with the big processors for pre-
pared frozen entrees — where the
watch on quality must be exacting.
"One person decides he can shave a
few pennies by putting cheaper meat
in the beef stew," explains Wood-
house. "Another decides he can put in
more potatoes, and before you know
it, a perfectly acceptable dish has be-
come garbage." Baugh and Wood-
house think sales of Compton-pur-
chased foods just to existing custom-
ers could add as much as $800 million
to sales.

Limits to growth? Baugh and Wood-
house want to move into the 34 met-
ropolitan areas where Sysco doesn't
have a presence — but they are as care-
ful with their expansion plans as with
the frozen beef stew. "We've had to
walk away from acquisitions because
we didn't have the people to keep
track of them," admits Woodhouse.
Sysco's secret? Simple: paying atten-
tion— to costs, to resources, and to a
customer needing lobsters at 5
o'clock on Saturday. ■

How
to change
a forecast

To help weather the storm
of economic variables, a person
could use the IBM Personal
Computer.
With software like VisiCalc*
(really an "electronic worksheet") you
can calculate up to 63 columns and
254 rows of numbers — implementing
formulas and changing labels
as you go.

You can also plan on the IBM
Personal Computer to help create a
sales forecast. Spot a trend. Test a
budget. And aid you on the quest for
the right answer to "what if?"

Now, don't wait for a rainy day
to visit an authorized IBM Personal
Computer dealer.

\bu'll learn that the quality,
power and performance of this tool are
what you'd expect from IBM.
The price isn't.

The IBM Personal Computer
A tool for modern times

For a store near you (or information from IBM about quantity purchases) call (800) 447-4700. In Illinois, (800) 322-4400.
In Alaska or Hawaii, (800) 447-0890. * VisiCalc is a trademark of VisiCorp

FORBES, OCTOBER 11, 1982

The Up & Comers

How the Japanese forced people much like
those in Our Town to change the way they
did business— for the better.

"This was
the only business

we had

11

By Paul B. Brown

Up until the 1970s or there-
abouts, life in Peterborough,
N.H. (pop., 4,897) was pretty
much the way Thornton Wilder de-
scribed it back in 1938. Peterborough,
they say, was the inspiration for
Wilder's Our Town, a place described
as "an ordinary town. A little better
behaved than most. Probably a lot
duller." Just after WWII, Arthur Dan-
iels, an engineer from San Pedro, Calif.,
had started a company called New

Hampshire Ball Bearings, Inc. in
Peterborough because he liked the ru-
ral setting and the work ethic of the
natives. Back then, there wasn't a traf-
fic light in town, and work at NHBB
consisted of one person's sitting at a
table placing steel balls in metal rings.
Today there still isn't a traffic light
downtown, but Japan and its work
ethic have changed Peterborough's
ball-bearings business forever.

It all began during the Vietnam
buildup, says Theodore Kanell, 59,
NHBB president, when "there was a

heavy burden placed on small mili-
tary suppliers like ourselves. It used
to be that we would ship four to six
weeks after getting an order. Well,
during Vietnam our lead time went to
35 or 40 weeks. And customers, of
course, couldn't tolerate that. It was
at that time that the Japanese, with
their exquisite timing, came in and
said, 'We can deliver those products
off the shelf overnight. Moreover, our
price will be 30% less than you cur-
rently pay.' The offer was absolutely
irresistible. When things in Vietnam
subsided, we looked around and found
that Japan had cornered about 40% of
the market. It had happened virtually
overnight. That was 1971, the only
time this company took a loss."

Japan's decision to make high-vol-
ume, low-grade miniature ball bear-
ings, which are used in virtually every
type of computer and office equip-
ment, drove out each of the half-doz-
en companies that had been compet-
ing with NHBB.

"Companies like MPB in Keene,
N.H. [a division of Wheelabrator-
Frye), Fafnir Corp. [part of Textron]
and MRC [a division of TRW] grunted
and withdrew to make other kinds of
bearings," Kanell recalls. "We
couldn't withdraw, this was the only
business we had."

What NHBB did instead was copy

New Hampshire Ball Bearings President Theodore Kanell

"We looked around and saw the Japanese had 40% of the market.

NfJBB's dust-free assembly room

"When people hear we are in Peterbo

60

FORBES, OCTOBER 11, 1982

How to move

a paragraph.

For memos or manuscripts, sales
reports or book reports, a person could
use the IBM Personal Computer.

Because, with
the EasyWriter*
JL software program,
creating, revising
and storing text is
just that. Easy.
With ten function keys that help
save time on repetitious tasks and
"menus" that guide you along, the
IBM Personal Computer can insert
a clause. Delete a line. Move a
paragraph from one page to
another. Transfer text from file to
file. Even merge words from your
EasyWriter program with numbers
generated by your VisiCalcf program.

And when you're done, a copy
of the finished product can be printed
out at 80 characters a second.

So if you do any kind of writing,
try it on the IBM Personal Computer
at your nearest authorized dealer.
\bu'll see that the performance, quality
and price are really something to
write home about.

The IBM Personal Computer
A tool for modern times

For a store near you (or for information from IBM about quantity purchases) call 800-447-4700. In Illinois,

800-322-4400. In Alaska Or Hawaii, 800-447-0890. » EasyWriter is a trademark ot Information Unlimited Software, Inc.

t VisiCalc is a trademark of VisiCorp

61

SOME PEOPLE ONLY SEE AN

ISLAND PARADISE. WORLD'S FINEST CHOCOLATE

SAW AN ISLAND OF OPPORTUNITY.

World's Finest
Chocolate, Inc. saw
opportunity in St. Lucia.
With OPIC's unique
political risk insurance,
they saw a promising
place to start a cocoa
plantation.

) 1982 Dancer Fitzgerald Sample. Inc.. NY. NY

We're OPIC: the Overseas Private Invest-
ment Corporation. And we can help make
overseas expansion both safe and profit-
able. We did it for World's Finest Chocolate
of Chicago. We can do it for you.

We specialize in political risk insurance.
Insurance against loss due to war, revolu-
tion, insurrection, civil strife. Expropriation,
nationalization, confiscation. Or the inability
to convert local currency into U.S. dollars-
all on a long-term basis. We also offer finan-
cing—through direct loans or loan guaran-
tees. We can share in the cost of feasibility
studies. And alert businessmen to specific

opportunities in certain countries.

Like you, we're business-oriented.
And we're backed by our own substantial
resources and by the full faith and credit of
the United States. So if you've been thinking)
of overseas investment, we can help make
it economically successful for you — and for
the host country.

Call toll free: 800-424-6742. Or write: OPIC,
1129 20th Street N.W, Washington D C 2052|

OPIC. We mean business
all over the world.

The Up & Comers

coupled with the cost of adding the
new computer equipment, took its
toll on the balance sheet. Capital ex-
penditures increased from $240,000
to $4.7 million between 1972 and
1979. So, while the company man-
aged to double sales from $11 million
to $21 million between 1972 and
1976, return on equity was only 7%.
The switch to high-tech bearings
"was a long, evolutionary process/'
says Kanell simply. But it eventually
worked, primarily for three reasons.

By 1978, NHBB was getting invited
to bid on projects along with Rolls-
Royce competition, and it was win-
ning its share, partially on quality and
partially on speed. "You'll notice that
all of our competition is now a divi-
sion of someone else," Kanell says.
"While that means you have access to
the parent company's capital, you pay
for that in terms of how long it takes
you to respond to an opportunity. I
can be walking through the sales floor

"We had the reputation of
being a high-volume, low-
cost house. We were good if
you wanted a Chevrolet, hut
if you wanted a Rolls-Royce
you went elsewhere."

and one of our people will be on the
phone with a customer offering us a
job at a specific price. While the cus-
tomer is still on hold, the salesman can
ask me what I think and we can decide
then and there if we want the job,"
says Kanell, who started with NHBB
26 years ago as a sales engineer. "There
have been cases where we've shipped a
prototype before our competition
could decide whether or not it wanted
to bid on the job."

Another key decision made by
Chairman Daniels, an Annapolis
^graduate, was to go after the high-tech
jjmilitary and aerospace market, in-
stead of going after larger equipment.
The move to high tech freed NHBB
from head-on competition with the
Japanese. The precision ball bearings,
with higher engineering, boosted mar-
igins. Now 50% of the company's
iwork is done for the military. There is
a full-time government inspector at
the company's plant in Peterborough,
and NHBB has built a 5,000-square-
toot, dust-free room in which employ-
ees wear space suits and have to pass
through an air shower to enter.
"When people hear we are in Peter-
borough, they picture some back-

FORBES, OCTOBER 11, 1982

How to balance
the books.

To maintain a strong foothold in financial
and accounting matters, a businessperson could use
the IBM Personal Computer.

It helps with accounts payable by
generating everything from vendor
files to month-end credit records.

It saves time on accounts
receivable by printing invoices and
:onsolidating multiple transactions.
The computer even writes checks.
And it uses general ledger
packages that improve control
and productivity today, so
you won't be off balance
tomorrow,
lb get an in-depth account
of programs from both Peachtree
Software Inc. and BPI Systems,
Inc., visit an authorized IBM Personal
Computer dealer.
\bu'll find the quality of the IBM Personal
Computer is what you'd expect.
The price isn't. =■ '

The IBM Personal Computer
A tool for modern times

For a store near you (or information from IBM about quantity purchases) call (800) 447-4700. In Illinois, (800) 322-4400.
In Alaska or Hawaii, (800) 447-0890.

This is another image of the nation
that is the world's largest exporter of coffee.

Brazil is noted for being the
world's largest coffee exporter.
But the Brazilian economy
doesn't grow and thrive on coffee
exports alone.

Last year, more than half of
Brazil's 23 billion U.S. dollars
in exports consisted of industrial
products and sophisticated
services. Compare this with 1970,
when exports totaled a mere
2.748 billion U.S. dollars.
Today, thanks to this nation's
development of economical,
efficient hydroelectric power -
with a potential estimated at
213,000 MW - Brazil ranks as one
of the ten most heavily indus-
trialized nations in the West.
Between 1970 and 1980,
agricultural production increased
66.77o. And now, Brazil is close

to becoming the second largest
food exporter in the world.
In addition, Brazil also exports
planes, ships, shoes,
canned sweets, textiles, diverse
technology... and many other
products and services to
key markets spanning the globe.
In recent years, the average
yearly increase in Brazil's Gross
National Product has been one
of the highest in the world. And,
per capita income in 1981 was in
the area of 1,990 U.S. dollars.
Brazil has a national territory of
8 1/2 million square kilometers
and a population of 120 million,
half under 20 years of age.
Gross savings are equal to 25%
of the GNP.

And, to keep pace with all this
development, Brazil has a great
bank with 70 agencies abroad
and 2,000 branches within

the nation's borders. That bank

is Banco do Brasil.

Since it opened its first overseas

agency in 1941, Banco do Brasil

has been a principal link between

foreign investors and Brazilian

businessmen.

Today, Banco do Brasil stands as

the main financial agent

of Brazil. With its help, you can

discover all of Brazil's financial

potential in the areas of business

dealings, investments,

and mutually profitable joint

ventures with your Brazilian

counterparts.

j£ BANCO DO BRASIL

\bur gateway to business in Brazil.

OVER 2,000 BRANCHES IN BRAZIL • BRANCHES AND OFFICES IN ABIDJAN • AMSTERDAM • ANTOFAGASTA • ASUNCION • ATLANTA • BARCELONA
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PARIS • PARIS (OPERA) • PAYSANDU • PUERTO PRESIDENTE STROESSNER • QUITO • RIVERA • ROME • ROTTERDAM • SAN FRANCISCO • SAN JUAN
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VIENNA • WASHINGTON • ZURICH

The Up & Comers

woods operation where employees
work in leather aprons," Kanell says.
"It isn't quite the case."

The Japanese can be credited for the
final component of NHBB's success.
By driving all but NHBB from the
high-volume, low-cost, miniature-
ball-bearing market, Japan left Ameri-
can manufacturers with only one
choice if they wanted to buy Ameri-
can— a growing concern for both man-
ufacturers and the military. With the
explosion of the personal computer
market (Forbes, Feb. J 5 and Aug 2),
finding a domestic manufacturer has
become important. "These guys (the
computer manufacturers) are con-
cerned about Japan copying what they
have done. This gives us an edge."

It also gives NHBB rapidly increas-
ing sales. Primarily on the strength of
the computer market, in the last two

"There have been cases
where we've shipped a pro-
totype before our competi-
tion could decide whether
or not it wanted to bid on
the job."

years NHBB's sales increased 36%, to
$60.6 million. Over the last five years
the company has averaged a 16.3%
return on equity on relatively little
debt — 25% of total capital — and earn-
ings per share have increased 70%.

The question is where to go from
here. The small-ball-bearing market
is estimated to be about $350 million
a year. So, even with the $140 million
held by the Japanese, NHBB has some
room to grow, but not enough to satis-
fy Kanell. So he is looking to three
new directions.

"If you make a ball bearing ivith its
assembly you are talking about a $70
item, as opposed to $12 for just the
bearings," Kanell says. "Also, if a cus-
tomer is buying from NHBB ball bear-
ings contained in an assembly, when
it looks for replacement parts it will
not be looking for just the bearings."

Then there are acquisitions. The
company is sitting on more than $4
million in cash, has reduced long-
term debt to just 19% of total capital
and has a $4 million line of bank
credit. What is Kanell looking for? "A
small metal-working shop that makes
small gears, for example, would fit,"
he says. Further in the future is a plan
to move into bigger bearings, but this
would be a costly step, since the com-
pany's current line stops with bear-

FORBES. OCTOBER 1 1, 1982

How to put the
big board on a
small screen.

To take stock of the situation, an investor
could use the IBM Personal Computer.

With our Dow Jones'" Reporter,* a device
called a modem1' and a telephone, you can access
Wall Street and the world.

Tap the Dow Jones
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historical and current stock
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(Use our Dow Jones
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Pull 10K extracts of
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Get industry news.
Even enjoy sports news
when you've had your
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To better manage your
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learn how a small IBM investment can give
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For a store near you (or for information from IBM about quantity purchases) call (800) 447-4700. In Illinois,

(800) 322-4400. In Alaska or Hawaii, (800) 447-0890. *Dow Jones is a trademark of Dow Jones & Company, Inc.

tNot supplied by IBM.

65

The Mercedes-Benz 300DTurbodiesel:
Americas best -performing diesel is also one
of the worlds most civilized sedans.

A diesel that loves hills and sprints away from stoplights ... a sedan that laps up
sports car roads. The 300 D Turbodiesel is both. Meanwhile, it coddles you and your
passengers in that secure comfort unique to the automobiles of Mercedes-Benz.

i ^"ercedes-Benz engineers
. V A have extracted more sheer
•ower from the 300 D Turbo-
iesel Sedan's five-cylinder
ngine than any other engi-
eers have yet extracted from
ny other passenger car diesel,
|uge domestic V-8's included.
' Their secret was to couple an
idvanced engine design with a
jower-boosting turbocharger.
ven other turbocharged diesels
re left flatfooted; this spacious,
jlid, 3585Tb. five-passenger
lercedes-Benz sedan ranks as the
est performer of any diesel auto-
lobile sold in America.

The 300 D Turbodiesel is mean-
hile perhaps the most conscientious
erformance automobile in Amer-
a, because it is so inherently effi-
ent that EPA figures show[27|mpg
ty estimated and 33 highway* An
most uncanny balance of power
id frugality is thus struck.

So exotic is engine technology
lat the interior of each moving
iston is constantly cooled by pre-
sely timed jets of oil. But deep
3wn this is still a diesel: a rugged,
liability-minded diesel that will
ever require a conventional
me- up.

Do not disturb

liquid-smooth and seemingly fric-
tionless. The shift lever is mounted
down on the transmission tun-
nel-but look again. The quadrant
reads P-R-N-D-S-L. It is no mere
automatic but a four-speed auto-
matic, and is designed to serve
equally well when shifted by hand.
America's most advanced automo-
tive braking system is four-wheel
disc braking. An 11-inch disc brake is
fitted to every wheel of every 300 D
Turbodiesel Sedan.

Mercedes-Benz engineers care lit-
tle if the outside world knows that
total swept brake area is a massive
456.5 square inches, or that the
300 D's front suspension geometry
is devised to help minimize front-
end "nose diving" in hard stops.
Their main concern is that the driver
is better served by these and myriad
other technical flourishes.

Designed, not decorated

Even when fully padded and
finished, the interior of the 300 D's
welded steel body shell measures
almost five feet in width-sufficient
to easily accommodate three adults
in the rear seating area, for example.
Electronic cruise control, AM/FM
stereo radio/cassette player, auto-
matic climate control system and
electric window lifts-whatever
conventional luxury sedans furnish
by way of real conveniences, so
does this sedan.

Garishness, however, is absent.

The instrument panel is
no entertainment center twin-
kling with gadgetry but an
exercise in ergonomics, meant
to ease the driver's task by
simplifying it.

The engineers continuously
strive to make driver controls
fewer and less awkward to
use, and so reduce driving
complexity. Item: the single
steering-column lever that lets
you perform nine different driv-
ing functions-without taking your
hands off the wheel.

Seats are not designed to look lux-
urious but to so support your body
that you feel relaxed, even after an
all-day drive.

Interior wood trim is genuine
wood from the Mercedes-Benz
shops, handworked and fitted and
finished. A small thing, but it epito-
mizes this car's unremitting honesty
of character-as its 120 built-in safety
features epitomize its seriousness of
character.

The luxury of retained value

The 300 D Turbodiesel boasts a
final and powerful distinction. As a
Mercedes-Benz, it shares a name so
coveted by American buyers today
that after the first three years, the
entire Mercedes-Benz tine— not just a
few isolated models-has been
shown to retain an average of 84
percent of original value.

If retained value is a form of lux-
ury, then perhaps the 300 D Tur-
bodiesel is, after all, a luxury car.
*EPA estimate for comparison purposes.
The mileage you get may vary with trip
length, speed and weather. Actual high-
way mileage will probably be less.

©1982 Mercedes-Benz N.A., Inc., Montvale, N.J.

Engineered like no other
car in the world

The Up & Comers

ings just under 3 inches in diameter.
"To move into larger bearings would
ultimately cost $30 million to $40
million for equipment," he says.

That could be paid for by suitors
who are forever dropping by. "We are
courted almost constantly," Kanell
says. "And these big companies can
be mighty persuasive." But not per-
suasive enough to convince Daniels,
who with his wife owns about 18% of
the stock, controls another 5% or so
and without whom a takeover would
be difficult. But Daniels is 73, not in
the best of health and has a strict rule
against nepotism.

What happens when Daniels is no
longer in the picture? The general feel-
ing within the company is that it will
finally be acquired. "It might be inevi-
table," Kanell says sadly. When you
are small, make the right decisions and
don't control the stock, that is often
the price you have to pay. Thornton
Wilder would have understood.

Borrowing the
Midas touch

W- e didn't invent the wheel," says
Victor Loscalzo, "we just pointed
the wheel in the direction it's going to
go." If you substitute tail pipe for
wheel, you can understand what Lo-
scalzo, president of Superior Muffler
Centers, Inc., is talking about. Superi-
or is taking aim at Midas, which
dominates the $3 billion (annual re-
tail sales) exhaust-repair business.

Superior differs from typical fran-
chise operations because it seeks out
automotive service businesses al-
ready in operation — gas stations, auto
parts outlets, new-car dealers, tire
dealers, even car washes — and helps
them convert some facilities into
minispecialty shops for exhaust-re-
pair work. It costs only about $15,000
to make the conversion and become a
dealer, and Superior will help finance
that. Dealers get branded mufflers and
pipes 25% to 35% cheaper, plus ad-
vertising and promotional assistance
and a pipe-bending machine so they
can reduce inventory costs by cus-
tom-bending tail pipes for each job
instead of having to store countless
varieties of prebent pipes. To top it
off, Superior gives them a lifetime
guarantee on all replacement parts
and labor. In these days of gasoline
glut, Superior's offer has a lot of ap-
peal to the troubled service-station
owner. He can make profitable use of
that idle service bay for a low capital

Victor Loscalzo of Superior Muffler
Bigger in dealers, but not in dollars.

investment. There's practically no
new overhead created. Best of all, Su-
perior takes relatively little once the
franchise is in operation. The com-
pany charges just 8% of the gross on
exhaust jobs for co-op advertising. Su-
perior makes almost all its money
from parts sales.

By comparison, a Midas muffler
franchise is far costlier. Recent start-
ups for Midas dealerships, which
must be freestanding shops dedicated
solely to exhaust and brake work, run
around $350,000 or more, including
about $135,000 up front for equip-
ment, inventory and working capital.
Then Midas takes 10% of the shop's
entire pretax gross for royalties and
advertising. And the Midas parts-and-
labor guarantee applies only to muf-
flers, not to pipes and fittings.

With that kind of difference in
startup costs, it should be no surprise
that Superior passed Midas in num-
bers of dealers in 1977, four years after
it started. Today it has 2,300 dealers
in the U.S. and Canada, compared
with about 1,300 shops for Midas, and
is adding almost two for every one
Midas adds. Does that mean that Su-
perior is bigger? Not by a long shot.
The dollar volume of Midas' retail
repair work last year was substantial-
ly higher than $250 million. Superi-
or's was about $100 million. Even so,
last year Superior netted $2 million
on parts sales of $18 million, up more
than 30% over the year before.

That growth should continue for a
while. Thousands of service stations,
oil-company franchisees and repair
shops will close in 1982, a continu-
ation of a trend that has seen 35% of
the nation's 226,000 service stations
close since 1972. For many such busi-
nesses, the cheap diversification that

Superior offers could make a life-and-
death difference. If Superior manages
to get its goal of 6% of the total retail
exhaust-repair work over the next five
years, that would mean about $70
million in wholesale-parts sales.
From there Loscalzo wants to branch
out to Europe and increasingly into
brake jobs, product additions and
sales of hydraulic lifts and other facili-
ties. "We can sell practically anything
to our network of dealers," he says.
"We're really a national cooperative
buying system, doing for service sta-
tion owners what the oil companies
should have done for them many
years ago."

Financing those ambitions may be
tough. People may be using Superior
outlets because they're driving their
cars longer, but they are also making
more claims against its uncommonly
generous warranty. Last year that
meant over half — $ 1 .2 million — of Su-
perior's profits were sliced off the bot-
tom line. That brought the profit mar-
gin down from 11.1% to 4.4%. Still,
Loscalzo intends to maintain Superi-
or's guarantee policy, stressing it
helps make him different from Midas.
You have to wonder how long he can
afford to do that and remain private. It
is one thing to outmarket the giants
in your field; making money while
doing it is harder. — Steven Flax

Handing over
the payroll

Bill Ingraham was so concerned
about losing employees from his
commercial printing company in
Cortland, N.Y. that he fired all nine of
them. They were delighted, he says,
and nowadays business is just fine,
thank you.

UliPLINGTON

NORTHCRM

BURUNGTON

NORTHERN ^^^W

C O N R A II

WHIM

Can you spot the five cars headed for Wyoming?

rhe mind-boggling job of keeping track
3f trains in a switching yard is handled
3y a giant computer console.

rhis computer receives its signals over
Dur 3M Scotchflex Cable/Connector
System. It's a color-coded system of
;ables, connectors, assembly equipment
and accessories that puts complex
nstallations on a fast track.

By listening to peoples needs, we've
□ioneered over 600 products to serve

the needs of the electronics and
electrical manufacturing industries.

We've developed everything from
magnet materials for computers to
components that protect transformers
from ruinous overheating.

All because at 3M, we're in the business
of hearing. So let us hear from you.

3M hears you...

For your free 3M Electronics/Electrical
Manufacturing Brochure, write:
Department 030210/3M, P.O. Box 4039,
St. Paul, MN 55104.

Name

Address.
City

_ State

-Zip_

Or call toll-free: 1-800-323-1718,

Operator 363. (Illinois residents call
1-800-942-8881.)

3M

SmithKline

SmithKline Beckman Corporation/World Headquarti

When world leaders in technology unite,
the results are worth watching.

SmithKline and Beckman Instruments,
both converging on answers to key challenges in
health care and human well-being, are now
SmithKline Beckman Corporation.

Through innovation, our businesses have

achieved combined compound annual growth
rates of 25% in net earnings and 19% in sales
from 1972 through 1981 . In 1982, sales will sur-
pass $3 billion and we'll reinvest a quarter billic
dollars in R&D, planning sustained growth in
sales and earnings for years to come.

Look into two of the many worlds

Converging

Beckman

One Franklin Plaza/Philadelphia, PA 19101

mithKline Beckman:

In Eye Care, we hold first place in the U.S.
thalmic and contact lens accessories market.
Edition, we're exploring ophthalmological
lications for our unique expertise in histamine
peptide technologies. In the eye above, a
er chemical helps monitor glaucoma-related

technologies

phenomena.

In Physiological Monitoring, we continue to
innovate precision systems for clinicians and
researchers. One of some 6,000 Beckman prod-
ucts is the automated unit above, for assessing
metabolic and respiratory variables.

Look into SmithKline Beckman. And look
into the future.

How dareThe Glenlivet
be so expensive?

How dare we place such
a premium on our 12-year-old
Scotch? The same reason vintage
wines and fine cognacs are so
expensive. Superior taste. Just
one sip and you'll know that
The Glenlivet has a taste that's
decidedly superior.

The Glenlivet is
Scotland's first and finest single
malt Scotch. Nothing but
100% Highland malt whisky,
distilled from natural spring
water and fine malt barley,
aged in oaken casks, just as it
always has been.

Only our time-honored
methods can truly achieve
The Glenlivet's unequaled taste.
A taste that sets it apart. Its
smoothness, body and bouquet
are qualities found only in this
unique Scotch.

Of course, you may elect
to purchase a good Scotch that's
less expensive. But for a truly
superior taste, you have to pay
the greater price.

The Glenlivet

12-year-old unblended Scotch.
About $20 the bottle.

1 1982 SEAGRAM DISTILLERS CO

Ingraham's staff is now employed
by Paystaff, Inc., a novel employee-
leasing firm that may be too good to
be true. You can't fault Carmen Arno
Jr., owner of the $6 million (projected
1982 sales) Los Angeles venture, for a
lack of courage. Three years ago the
38-year-old accountant decided that a
lot of small businessmen would pay
him to take care of the headaches of
employee administration — pensions,
withholding, insurance, even raises,
hirings and firings. He was right.
More than 300 business owners —
most of them in California, New
York and Texas — have turned their
workers over to Paystaff, which pays
their salaries, handles their benefits,
even counsels them on matters like
personal bankruptcy. Paystaff then
leases them back to the small busi-
ness owners, who retain control of
the business.

What's in it for Paystaff? By pooling
more than 1,500 workers, Arno econ-
omizes on benefits. Programs like
self-insurance and preventive health
care further reduce his expenses.
Whereas the average firm spends 37%
of its payroll on benefits, Arno says he
can do it for 30%. Including his 5%
fee, Arno claims to offer his service at
about the same cost as current pay-
roll, despite a benefit package with
such plums as $2 prescriptions and
adoption counseling. He netted 2%
on sales of $1.9 million last year, and
expects about the same margin for his
projected sales of $6 million this year.
"The key, " he says in a notable under-
statement, "is keeping costs down."

Ingraham, who figures Paystaff
costs him only 6% more than his pay-
roll did, is happy now that his benefits
at Cortland Press exceed those at the
unions that once were so tempting.
And in Minnesota, where the North-
field Medical Clinic is the only Pay-
staff company, the owners and work-
ers are also content. "We have a good
benefit plan — better than we had be-
fore," says the office manager. "Oth-
erwise there's no feeling of change.
And we still have the office Christ-
mas party." Indeed, only two clients
have left Paystaff, and one of those
was asked to do so.

But Arno admits that rising premi-
ums from, say, a blowout in a self-
insurance plan would force him to
raise his fee. With a margin of only
2%, there's no room to maneuver.
Trouble is you can raise the fee only
so much before the cost outweighs
the benefits. For existing Paystaff cli-
ents, however, getting out may be
tough, once employees understand-
ably get used to benefits the company
can't afford. — Robert McGough

The Up & Comers

After years of red ink, BJ. McRae hit it big
in combat boots. Now he's expanding, in
the face of overcapacity.

Fortitude

By John A. Byrne

Branson J. McRae well remem-
bers the day in 1967 when op-
portunity knocked. At a meet-
ing in Philadelphia a military procure-
ment officer told some 40 footwear
manufacturers that the government
would no longer accept combat boots
with stitched-on soles and heels. The
boots didn't hold up against the wet
and marshy fields of Vietnam. So the
government wanted boots with mold-
ed rubber bottoms.

"I was there and I heard what the
man said," recalls McRae in a Caroli-

na drawl. "He said, 'You contractors
can write all the letters you want to
your senators and congressmen. You
can whine and moan and bitch. But
those of you who change over will get
the business, and those of you who
don't won't get no business.' "

McRae, a 62-year-old with a mane
of white hair, was all smiles when he
heard the news. For almost seven
years his McRae Industries in tiny Mt.
Gilead, N.C. had been churning out
children's shoes with molded soles
and heels. He may not have earned a
dime for years, but he had a rubber
mill at his plant and had the molding

Branson J. McRae of McRae Industries

"Just hang in there, buddy, those who get impatient will sell out cheap.

FORBES. OCTOBER 11. 1982

73

The more

your company rents,

the Thriftier we get.

Thrifty starts off being thrifty. Our airport pickup service saves
you money even the first day. When you rent for two, three days
or more, we save you a lot of money.

When you multiply that by all the days your people rent
cars in a year, you can put the result straight into your profit
column.

And a Thrifty Special Account gives you a significant
reduction from our already lower price.

To find out just how much your company can transfer from
the expense column to the profit column, call our Special
Account Hot Line. The more you rent, the Thriftier we get.

Special Account Information Hot Line

800/331-3550

In Oklahoma call 918/665-3930

Or write Frances Miller, Thrifty Rent-A-Car System, Inc.,
P.O. Box 35250, Tulsa, OK 74135.

We feature Genera! Motors cars like this Chevrolet Caprice Classic.

rr =av

Thrifty

■ rent-a-car

74

The Up & Comers

process down pat. "I would have bet
my last dollar that this was my
chance to make it," says McRae.

So McRae did an about-face, fo-
cused on combat boots and hit pay
dirt on his first contract, in 1967.
Even after the fighting stopped in
Vietnam, McRae continued to coin
money in combat boots. As a low-cost
producer he was able to survive the
shakeout that followed war's end.
Things have improved mightily since.
In the past five years little $13.9 mil-
lion (sales) McRae has been among
the most profitable companies in the
U.S., with an average 48.7% return on
equity and virtually no debt. McRae
stock, little noticed until 1980, shot
up from 50 cents to a recent $10 on
tbe o-t-c, making McRae's personal

"J was there and I heard
what the man said," recalls
McRae in a Carolina drawl.
"You contractors can write
all the letters you want to
your senators and con-
gressmen. You can whine
and moan and bitch. But
those of you who change
over will get the business."

30.5% holding in the company worth
about $4.2 million.

Wall Street's enthusiasm comes at
a curious time. This year overcapacity
in the industry has severely squeezed
margins, causing McRae's net to fall
25% in the first three quarters, on a
7% decline in sales. But if McRae is
worried, he doesn't show it. Instead
he talks about how annoying it is that
the recession will delay the break-
even of his computer software busi-
ness. Computer software business?
Well, it seems that when he asked
two local engineers to help him com-
puterize his piecework accounting,
they came up with a laser-wand sys-
tem that could read worker-prepared
piecework cards. They even cracked
an IBM code in the process. Because
the system eliminates the need to
punch in every worker's card ind vid-
ually, McRae decided to marke' the
process. He thinks it will be a hit with
any piecework operation once busi-
ness picks up.

Tooling along winding roads in the
Carolina countryside in his gleaming
gold Mark VI Continental, McRae be-
gins talking about fortitude, the
motto that is emblazoned on the fam-
ily's Scottish coat of arms. "Forti-

FORBES, OCTOBER 11, 1982

How to get

to the Middle East
and Africa* Rested*

DEPART NEW YORK, ATLANTA, CHICAGO, HOUSTON, LOS ANGELES, ANCHORAGE

2.

ARRIVE IN AMSTERDAM

Stay on the way to:

KUALA LUMPUR
SINGAPORE

JAKARTA

International
flights to
cities halfway
around the
world ar e ex-
hausting for
almost everyone
Fbr the vacationer,
this experience can
be a disorienting inconvenience.

However, for the pressured
business traveler the burden of
jet lag is especially heavy.

Increasingly, business travelers
are discovering it makes sense to
divide their trip with a rest stop
along the way. Many corporations
encourage their executives not to
fly straight through. A work day is
simply more productive when you
arrive relaxed.

Y m The seat that comes
J 9 with a hotel room.

L M It makes wonderful sense
to catch your breath in
m Amsterdam when connect-
ing for flights to or from Dubai,
Abu Dhabi, Lagos or any of 40
Middle Eastern, Ear Eastern or
African business centers.

All KLM Royal Class and Business
Class passengers to these cities
are entitled to a deluxe hotel room.
It's part of KLM's "Stay-on-
the-Way" plan.

In addition to a spacious room
for either a day or overnight, you'll
receive motorcoach transportation

between the

airport and the city and a
$16 credit toward a delight-
ful meal at your hotel,
all at no extra cost.

Amsterdam.
The center of
Europe.

Amsterdam is the very center
of European air travel. And
Amsterdam has only one airport
with only one terminal. All under
one roof. Here you'll find more
than 1,284 weekly connections to
125 cities in Europe, the Middle
East, the Ear East and Africa.

For reservations, call your
Travel Agent, your corporate
travel department or KLM.

KLM

Royal Dutch Airlines

The airline of the international business traveler

THE WORLD'S
MOSTADVANCE

COPIER LOOKS
EVEN BETTER
THIS YEAR.

LAST YEAR THIS YEAR

Last year, the eye on the left was the state of the art in
copier reproduction. Whites had never been whiter. Blacks had
never been blacker.

But as our little eye test proves, the world's most advanced
copier is even more advanced this year.

The Xerox 9500 now has Photo Contrast Control.

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tude," he says, "will serve you when
nothing else will. Just hang in there,
buddy, hecause those who get impa-
tient will sell out cheap. Those who
persevere will reap the harvest."

MeRae knows what he's talking
ahout. Starting out as a carpenter's
helper in 1937 for 20 cents an hour, he
eventually amassed enough money to
go into the construction business
with a couple of his brothers after the
war. As the Sunbelt boomed, the
McRae Brothers Manufacturing Corp.
flourished, landing contracts to put
up stores, churches and homes
throughout Montgomery County. In
time McRae became a prominent
businessman and worked to attract
new business into the area.

The portly Southerner convinced
several local businessmen to put up
$200,000 in cash to persuade a New
York footwear company to relocate in
an old school building he had pur-
chased in 1955 tor $5,600 and was
using as a warehouse. But at the last
minute the New York company
moved instead to Selma, Ala.

Says McRae: "I felt embarrassed
about it and said, 'Let's see if we can
get somebody else.' " That somebody
turned out to be himself. Call it pride,
or community spirit, or perhaps em-
barrassment, but Branson McRae de-
cided to turn his schoolhouse/ ware-
house into a shoe factory himself. "I
didn't know a damn thing about mak-
ing shoes, but I took a chance."

For a third of the new venture's
stock McRae chipped in $100,000
cash and assets, including the remod-
eled school building. He bought
$25,000 worth of used sewing ma-
chines and $20,000 worth of new
molding presses and hired the former
plant manager at another children's
shoe company to set up shop. Armed
with a total $300,000 in startup cap-
ital from selling the remaining two-
thirds of the company to local inves-
tors, McRae set forth to become a
national children's shoe manufactur-
er in 1959.

Trouble was McRae hadn't done
any financial planning and had no
idea what marketing was ail about. By
the time he had rolled out a brand
name shoe, Grow-Ri^ht, he discov-
ered he had no money left to advertise
it. And there was no fallback. As a
newcomer to the business, he lacked
the contacts and experience to sell
private-label shoes to stores. McRae
survived for the next seven years by
handing over a greater stake in the
company to an outside investor in
exchange for additional apital.

So it was a hungry, much chastened
Branson McRae who took a flier on

The Up & Comers

combat boots in 1967. Borrowing
$200,000 from the Small Business Ad-
ministration to tool up, McRae
earned enough profit on his first con-
tracts to retire that debt in 1 1 months.
"When I paid that SBA guy back, he
said I damn near shocked him dead,"
laughs McRae. "He thought he'd be
lucky to get it m five years."

The competition was formidable.
Among 12 other bidders were giants
like Bata Shoe, Ccnesco, Endicott
Johnson and Interco. Fortunately for
McRae such companies soon lost in-
terest as the demand for combat boots
fell in the post-Vietnam era. "When
Genesco gave up the ghost three years
ago, there were only three of us left,"
says McRae, "and we couldn't keep
up with production." So McRae hiked
the price of his standard black leather

A hungry McRae took a flier
on combat boots in 1967.
Borrowing $200,000, McRae
earned enough profit to re-
tire that debt in 11 months.
"When I paid that SBA guy
back, he said I damn near
shocked him dead."

and tropical canvas combat boots —
which now sell for about $21 a pair —
by over 40% in 1979 alone. Those fat
margins caused McRae and his two
larger privately owned competitors to
beet up capacity and also attract the
latest newcomer, Wellco Enterprises,
Inc., the inventors of the molded shoe
sole process. Meantime, the govern-
ment is buying fewer boots.

The result: instant overcapacity.
MeRae figures the industry produces
about 2.5 million pairs of combat
boots annually, but the government is
expected to buy only 1 .8 million pairs
this year. At the last bidding, prices
were down almost to cost.

But McRae has weathered shake-
outs before. He's counting on his
company's production efficiencies.
One of them is the hand-held laser
wand that enables the staff to collect
piecework numbers from factory
workers nearly four times as fast as
manual keypuncb operations.

It helps, too, that McRae runs a
nonunion shop and generously re-
wards his most productive employees.
Up to 20% of the company's pretax
profits, more than $800,000 last year,
are funncled into a profit-sharing plan
for all workers. "I could have bought
each one of my salaried employees a

pink Cadillac last year, and 1 still
would have had money left ovci to till
them all up with gas," says McRae.
"They'd run a union man right out ot
here." Or at least he hopes they would.

And as much as McRae may curse
the red tape he encounters as a gov-
ernment contractor, he's the first to
admit he benefits from it. At one
time, for example, Genesco found it-
self closed out of 50% of the market
because the government set aside half
its contracts for small companies like
McRae Industries. Another federal
rule puts firms at a disadvantage if
they aren't located in high unemploy-
ment areas. McRae gets around this
last one by purchasing materials from
so-called labor-surplus areas and sub-
contracting cutting work to a nearby
county with high unemployment.
And, of course, McRae, unlike tegular
U.S. shoe companies, doesn't have to
worry about imports because the gov-
ernment buys only U.S. -made boots.

Nonetheless, to lessen the com-
pany's dependence on government
work, McRae has gone into equip-
ment leasing, leasing such things as
Pac-Man machines, cars and knitting
machinery through a separate divi-
sion that will account for 20% of in-
come this year. McRae figures leasing
is a good deal. The tax credits and
depreciation benefits allow him to
shelter income from the combat-boot
business. In a recent deal he pur-
chased a new bulldozer for $121,500,
after finding someone who wanted to
lease it for five years. McRae will tie
up only 20% of the cost of the vehicle,
borrowing the rest. He then gets to
take off $12,150 in taxes this year as
an investment tax credit. He gets an-
other $10,000 break annually for five
years based on straight five-year de-
preciation of $25,000 per year. On top
of that, he gets more than $3,000 a
month in leasing payments. All told,
McRae figures he will earn 15% after
taxes on the little bulldozer deal.

Beyond that, McRae is going inter-
national. He just shipped his first for-
eign order for 40,000 pairs of combat
boots and is hoping for more to pick
up the slack on the domestic side.

Still, despite the current overcapac-
ity plaguing the market, he plans to
increase his domestic boot capacity
by 10% in early 1983. Why? McRae
wants to cash in the next time a com-
petitor closes its doors.

"Somebody's going to get pushed
out of this game pretty soon because
it's dog-eat-dog right now," says
McRae, his eyes brightening at the
thought. "We're just going to hang in
there because there ain't no way in
the world it's going to be me." ■

78

FORBES, OCTOBER 11. 1982

TRANSPORTATION

DEREGULATION—

A NEW MANAGEMENT

CHALLENGE FOR SHIPPERS

By: John F Wing
Sr. Vice President
Booz -Allen & Hamilton

Transportation didn't hold a lot of
surprises for shippers before deregu-
lation. Carriers offered fairly standard-
ized services at standardized prices.
Shippers knew which carrier offered
what, how much it was going to cost,
and which mode offered the best
deal. And just as importantly, shippers
knew what their competitors were
paying for transportation. As long as
their products were delivered safely
and on time, top management had
more pressing problems demanding
their attention. Government regulation
not only protected carriers from some
of the rigors of competition, but
shielded shippers as well from some
arduous management tasks.

Deregulation has changed all of
this. Public policy has directed that
users of public services pay for their
benefits, and that competition and
market forces determine the services,
costs, and supplies of transportation.
Major legislation has been enacted by
Congress to accomplish some of
these goals.

The process of deregulation is
ongoing but the effects have already
been profound. The relative prices
and advantages offered by transport
modes and individual carriers fre-
quently change; the distribution sys-
tems of many shippers are obsolete;
suppliers to the transportation indus-
try are unsure which carriers will need
equipment and when; and carriers
themselves, because of intense price
competition, shifting markets, and
profit squeezes, often cannot make
adequate investments in ^ent
and technology.

Shippers need to unde ne

implications of these developments
for their costs and distribution plans
There are many attractive new options
in rate and service terms that did not
exist prior to deregulation. As aggres-
sive carriers move to solidify their
market positions, shippers could
move decisively to lock in newly avail-
able options for an extended period
of time.

Let's look at some of the effects of
deregulation on competition and ser-
vice within the railroad and trucking
industries, at the implications of
deregulation for intermodal service,
and at the probable effects of upcom-
ing deregulation in ocean shipping.
Shippers will see that there are ways
to benefit from the newly deregulated
environment, as well as problems that
may surface.

DEREGULATION'S EFFECTS
ON RAILROAD AND
TRUCKING

Two major pieces of legislation
were passed by Congress in 1980
that fundamentally altered the railroad
and trucking industries. The Staggers
Rail Act of 1980 and the Motor Carrier
Act of 1980 removed much of the
Interstate Commerce Commission's
(ICC) control over rail and truck and
directed that prices and service
arrangements be set independently
by carriers on the basis of market
forces and costs. Three important
effects are that competition both
between and among railroads and
motor carriers has intensified, the
trend towards mergers has acceler-
ated, and intermodal shipments have
become more commonplace. Pend-
ing legislation to allow longer and
heavier trucks could bring about a
new wave of change in the motor car-
rier industry and greatly improve the
productivity and competitiveness of
trucks to the detriment of rail. The
long-term toll of deregulation for the

railroads might be high as trucks s
off their best and most profitable tr

The Staggers Act allows railroai
greater flexibility in setting rates,
legalizes contracts with customer;
removes regulatory control over c<
modities and service offerings, an
makes it easier for railroads to aba
don unprofitable lines, enter new
markets, and merge. Unlike the pa
senger airline and motor carrier
industries, railroads have adjustec
relatively well to the short-term
changes brought about by deregi
tion. One primary intent of rail dere
lation was to improve profits and
stability in the industry

Prior to deregulation, railroads t
ically did not compete in price with
each other. Rates were set collec-
tively for both single-line and joint-
services. Railroads can no longer
jointly set, or in most cases even d
cuss, rates.

Railroads must now also compe
more in terms of services offered-
reliability of rail car supply and eqi
ment, speed of service, loading/
unloading responsibilities, quality
equipment. Contracts guaranteeir
certain rates and services in return
a steady volume of business have
been negotiated by the newly com
petitive carriers and the more aggi
sive shippers.

But railroads want some busme
more than they want others; margn
customers whose shipments are
small either in volume or in the amc
of profit they offer to the railroads a
no. longer protected by regulation.
Some customers, therefore, face
higher rates and possible loss of ra
service along with a confusing anc
more complicated pricing system,
shippers have complaints, the Inte
state Commerce Commission will I
often offer recourse.

With the relaxation of ICC re-
strictions on rail mergers and line
abandonments, the trend toward d
solidation in the industry has accell

■

The company on the move.

Consolidated Freightways has grown faster
than ever since the Motor Carrier Act of 1980 —
popularly called "deregulation" but actually a
step toward freer competition. Two years ago, we
had fewer than 300 terminals in 48 states and
Canada. Today, nearly 400 in all 50 states. And
we're still averaging one new one a week.

Add to this 70 air freight terminals and doz-
ens of special commodities offices and agents,
and you get the picture: the CF map is the only

guide you need for freight transportation.

We're Consolidated Freightways common
and contract trucking service, CF Air Freight, and
CF Arrowhead special commodities truckload
service. We're Canadian Freightways in Canada.
More than 500 terminals and offices in North
America. Write for the picture story of the
CF System, our remarkable new freight-flow
concept: Department 7, 175 Linfield Drive,
Menlo Park, CA 94025.

Professional transportation for American industry
COnSOLIDRTED FREIGHTWflVS, IRC.

ated. Over time, therefore, fewer cus-
tomers may be served on fewer lines
by fewer railroads. Mergers are
expected to simplify pricing, increase
the average length of hauls, and
improve productivity and the guality
of rail services.

In the long run, the changes that
occur in the railroad industry may be
influenced as much by trucking
deregulation as by rail deregulation.
The Motor Carrier Act of 1980 lifts
many federal controls over truck
rates, and perhaps most importantly,
makes it easier for firms to enter new
markets.

While railroads had steadily lost
market share to trucks in the post-
World War II period, markets had
begun to stabilize. Now the equilib-
rium between the two modes has
been disrupted and trucks are again
competing for traditional rail busi-
ness. The truck owner-operators that
have proliferated since deregulation
generally cost less than do the major
trucking firms. They have underpriced
traditional motor carriers and won
business from them. As a result,
unionized trucking firms, with the
cooperation of their employees, have
been working in turn to cut their costs
and to improve their productivity.
Truckers, however, are paying the
price for this competition. Rate wars
have forced many smaller firms to
merge to or go out of business. Reve-
nues have fallen, and the profit
squeeze has been exacerbated by
the overcapacity in trucking due to
the recession.

The ability of motor carriers to com-
pete with rail in new markets and for
new commodities may improve fur-
ther. Recently completed labor nego-
tiations appear to reinforce the cost
advantage in trucking. The teamsters
have accepted a wage package esti-
mated to increase at a rate of 4.5 per-
cent annually for the next 3 years. The
rail labor agreement will increase rail-
road costs by an average of approxi-

mately 10 percent per year.

Pending legislation to increase
truck size and weight limits would also
improve the productivity and lower
the costs of many motor carriers.
Rates will probably come down, even
if companion legislation to raise truck
user charges were enacted.

IMPLICATIONS FOR
PIGGYBACK SERVICE

One of the most important out-
growths of rail and truck deregulation
may be the growth of piggyback
which lets shippers take advantage of
the economies offered by different
transport modes. Commodities move
by truck from the point of origin to rail
terminals where the trailer itself is
loaded onto a rail car for the long
haul.

But the theoretical attractiveness of
such an intermodal system had not
translated into a high share of the
freight market. Less than 3 percent of
intercity freight moved by piggyback
in 1980.

In the past, piggyback has had
some significant drawbacks—nota-
bly, high rates, a lack of specialized
handling equipment, and a frag-
mented rate structure. Perhaps most
troublesome to shippers, no one
entity could offer reliable service and
accountability for a shipment involv-
ing more than one railroad. Even with-
out the added impetus of deregula-
tion, however, steps had been taken
to eliminate some of the drawbacks.
Rates had come down, new and spe-
cialized equipment had been put in
place, and the quality of service had
improved.

With deregulation new commodi-
ties and markets have been opened
to piggyback service and rates have
come down further. In 1979, for exam-
ple, railroads were permitted to use
piggyback to enter the fresh fruit and
vegetable market, a market in which
rail service had been decreasing

since the 1950s. Subsequent derec
lation permitted carriers to offer pic
gyback services to all traffic.

Deregulation governing carrier e
from markets has also given piggy-
back new customers. Shippers whi
might lose rail service as a result oil
more liberalized line abandonment
rules have piggyback as an alterna
tive to their traditional rail service.
Easing of regulations on carrier ent
into markets also has encouraged
piggyback because there are man<
new motor carriers who can partici-
pate in piggyback moves.

Also as a result of deregulation,
railroads can more easily operate
their own trucking subsidiaries andl
thus generate more intermodal ship
ments.

During the first half of 1982, pigg
back carloads were up by almost 8
percent over the same period in 19.
while rail traffic in other freight, exo
coal, declined. Truck traffic has alsj
declined, an indication that piggy-
back is winning business and that t
shipping public has responded po:
tively to the advances made so far.
The potential for future growth is
strong.

Deregulation has not eliminated
the constraints to piggyback. Truck
and railroads still compete among
themselves and with each other, yei
collaboration is important in intermc
dal service. Sharing information, cu
tomers, and facilities is still antitheti
to much of the railroad and trucking
industries. Until the rise of third-pan
shipper's agents, this impeded the
growth of piggyback. Additionally, I
cost savings that are provided by p
gyback may diminish depending on
the price of fuel. When diesel fuel
prices rise, piggyback becomes a
more attractive alternative to shippil
by truck alone. If diesel fuel prices
stabilize or decrease, the cost sav-
ings from piggyback are less signifi
cant and the use of this service less
economical.

DELIVERS THE UL
AIR CARGO GUARANTEE.

Promises, promises, promises.

They fly around the air cargo
business with the greatest of
ease. Second only to excuses,
excuses, excuses.

Except at Flying Tigers.

Our domestic door-to-door
service features something our
competitors shudder to even
consider.

100% guaranteed on time
delivery.

We'll pick up virtually anything

you have to ship, and deliver it
virtually anywhere in the country,
overnight, on time. Or you don t pay.

No promises. No excuses.

Simply a 100% money-back
guarantee. Period.

For information on
our 100% money-back
guarantee, call your
local Flying Tigers
Customer Service
Office.

A TIGER INTERNATIONAL COMPANY

FLYING
TIGERS

IT'S ON TIME OR IT'S ON US.

"There* never been
a better time to bring
your freight business
to Conrail"

L. Stanley Crane

Chairman, Conrail

terms year, you're look-
1 ing at a more effi-
cient, more responsive
Conrail than ever before.

"We're not part of any
rate bureau. Our rates are
determined by the mar-
ketplace, and we can
quickly tailor a rate or
contract to your specific
needs."

"Now is the best time to
negotiate new contracts
or rates."

" Right now our system is
underutilized. We want to
get as many cars as possi-
ble loaded and rolling.
And to do that, we'll offer you some very
attractive terms.

"As a shipper, you really have nothing
to lose— and a lot to gain— by calling
Conrail to ask what we can do for you.

"I promise you this: Within our
operating areas, you won't find a carrier
more eager, or more competitive."

"Our service is second to none.
Just ask our customers."

"Ask our piggyback shippers, for exam-
ple. They'll tell you we're delivering

Our rates are competitive, we're running like clockwork, and
we're hungry for business," said Crane in a recent talk
with major shippers. Shown here are (left to right) John Regan
Eastern Associated Coal Corp.; James Abbey, Charter Oak
Shippers Coop. Assoc.; L. Stanley Crane; Michael Walsh,
St. Regis Paper Co.

their shipments within one hour o
schedule more than 85 percent of th
time.

"Our new computerized dock-to-doc

irvice monitoring is helping us run
noother and smarter. We can spot-
leck your shipment for you any time
id any place on our system.
"We've also introduced a new comput-
ized car management system, which is
aproving our equipment availability
id distribution. This car reservation
astern will be ready to meet your
luipment needs when the economy
cks up, too."

We plan to be the low-cost carrier in
the Midwest and Northeast."

onrail is reducing costs faster than any
ther railroad in the country. We're
ledding unprofitable routes in order to

0 a better job on our core-route sys-
im— where we have the competitive
ivantage.

"Our people have made major sacri-
ces, including wage concessions of
undreds of millions of dollars, in order
) improve our competitive position,
his means lower rates to you. Within
le Midwest and the Northeast, and at

1 the connections to our system, we are
mply the smartest and the most effi-
ent way to ship."

"WeVe made an extraordinary
financial turnaround."

onrail's 1981 financial performance was
ne of the most dramatic improvements
i American corporate history.
"From a $244 million loss in 1980 to a
39 million profit in 1981, we've made a
imarkable quarter-billion-dollar recov-
py— in spite of a decline in traffic and a
) -day coal strike.

"And we're making even greater
financial progress in 1982."

"New industry is
building on our system."

"Today, companies are demonstrating
their continued confidence in our ability
to deliver— they've invested millions in
facilities along the Conrail system.

"In 1981, 272 new or expanded facili-
ties located on Conrail's core-route sys-
tem, adding an estimated $100 million to
our revenues."

"Take your problems right to the top."

"We're determined to do a good job for
you. That means you'll get competitive
prices, innovative service and on-time
delivery.

"If we don't live up to our promise, I
want to know about it personally.

"Write to me at 6 Penn Center Plaza,
Room 1040C, Philadelphia, PA 19104.

"I'll fight to get your business -and I'll
fight to keep it."

For more information, including a free "Shipper's
Information Kit" with tips on how to get the most
out of Conrail services, send in the coupon below.

CONRAIL

I "We've got to be competitive"

, Mr. L. Stanley Crane ,

Chairman and CEO

Conrail, Room 1040C
I 6 Penn Center Plaza

I Philadelphia, PA 19104 1

| Please send the "Shipper's Information Kit" and more |
. information on Conrail. ,

N A'M E

| FIRM |

I ADDRESS I

CITY . . .

| STATE— ZIP |

L PHONE I
T'iLJ

4 Now there's
only one
name to
remember
for all your

container,

I'm Lewis Rubin, President
of Flexi-Van Corporation.
The Flexi-Van logo you're
now seeing on our contain-
ers, chassis and trailers is
only the most visible indica-
tion of the changes we're
making to better serve
the worldwide transporta-
tion market.

Our Flexi-Van container
and chassis division, for-
merly the Uni-Flex division,
has 245,000 20-foot-equiva-
lent containers and 56,000
chassis, making us the
second largest firm in con-
tainer leasing and the lead-
er in chassis leasing Our
size allows us to provide
flexible terms and respon-
sive service at 300 locations
around the world.

chassis and

Our Flexi-Van trailer divi-
sion, formerly the Gil-Flex
division, has a fleet of
16,000 trailers. Our net-
work of 60 terminals in
the U.S. and Canada is
the second largest in the
industry.

Our improved Management
Information System will
allow us to position equip-
ment more precisely, where
it's needed, when it's needed.

■ ■■ -VAN

trailer « r

So from now on, when you
think of containers, chassis
or trailers, think Flexi-Van.

leasing needs.

The one name to remember

FLEX/
-VAN

Containers

Chassis

Trailers

Flexi-Van Corporation
330 Madison Avenue
New York, New York 10017
(212) 286-4400

.imits on truck size and weights
likely to increase. This will lower
costs of motor carriage and may
) diminish the incentives for inter-
nal shipping.

'he new individualized rate setting
tern resulting from deregulation is
) a constraint to piggyback. While
e is more price competition
)ng carriers, researching and
uring rates is a more complicated
The complications increase with
rmodal shipments involving multi-
carriers and shippers may choose
void them.

)eregulation has, however, given
)pers a way to minimize some of
;e complications, and perhaps the
;t important result of deregulation
ntermodal service is the emer-
ce of shipper's agents. The agent
linates many of the difficulties that
je shippers reluctant to use piggy-
k. As a broker for the railroads
motor carriers, and as representa-
of the shippers, the agent can
te rates for an entire trip— dock-
ock— and can provide equip-
lt, service, and accountability for
total undertaking. The leverage
agent gains with carriers by bro-
ng, consolidating, and mixing
1 volumes of traffic means that
ecially low-volume shippers have
ater potential for lower cost, higher
lity and less complex service
■n agents work on their behalf.

ENDS IN OCEAN SHIPPING

he middleman has also assumed
w and facilitating role in ocean
■ping as a result of some first
is toward deregulation in this seg-
t of the transportation industry,
e an abundance of proposals to
en regulatory control of the ship-
I industry are pending in Con-
,s, few major changes have taken
e. And because of problems
)ciated with the international con-
nces of common carriers that

dominate ocean trade, legislation can
only go part way toward resolving
some of the problems that confront
both shipping lines and shippers. So,
while stepped up exporting may be
seen as one way to give American
producers new markets and reinvigo-
rated demand for their products, it is
not certain that deregulation can or
will satisfy shippers' needs.

The most important regulatory
change to date in ocean shipping has
been the lifting of requirements for
bills of lading from pier to pier. This
change means that goods can be
transported from shipping dock to
shipping dock and that any number
of participants can broker or control
the entire move. As a result, non-
vessel operating common carriers
(NVOCCs) have emerged, along with
freight forwarders and other agents,
to offer full service, single-price
moves to shippers. Ports, NVOCCs
railroads, and even motor carriers can
hold the primary contract for an ocean
crossing. This development has
diluted the traditional control of ship-
ping lines over international trade,
and has been particularly beneficial
to lower volume shippers to whom
attractive rates are not readily
available.

While this change has been advan-
tageous to shippers, the primary
intent of proposed shipping law
reform legislation (S.1593, H.R. 4374)
is to strengthen the financially ailing
merchant marine

Some provisions in the proposed
legislation would be beneficial to
shippers. These provisions would
legalize shippers' councils formed to
increase negotiating leverage with
carriers; permit more options in rate
and service terms; and permit carriers
or agents to set intermodal through
rates. But other provisions granting
antitrust immunity to certain shipping
conference activities, permitting
closed conferences, restricting Fed-
eral Maritime Commission oversight

on rates, and eliminating require-
ments for carriers to file ocean tariffs
could make it more difficult for ship-
pers to obtain improved rates and
services from shipping lines.

One major problem that deregula-
tion cannot eliminate is the price dis-
crimination against U.S. shippers that
results from the structure of the inter-
national conferences of ocean com-
mon carriers that control the prices
and supply of ocean transport.

In setting rates, the interests of U.S.
shippers are often overshadowed by
the interests of the European Eco-
nomic Community or the countries of
the Far East that tend to dominate the
conferences. The ocean rates that are
often available to exporters shipping
from abroad to the United States are
frequently denied to the American
exporter on the return leg of the cross-
ing. A study conducted by Booz-
Allen & Hamilton showed that in the
1970s, freight rates were 32 percent
higher on the outbound leg of a cross-
ing (American exports) than were
rates for similar commodities on the
inbound leg of the same route. It
seems, therefore, that a dispropor-
tionate share of the costs of ocean
carriers has been borne by the U.S.
exporter

Shippers also confront problems
because U.S. flag vessels give prefer-
ence to U.S. government cargo. At
times, this cargo consumes up to 70
percent of U.S. flag outbound space.
This reduces the capacity for com-
mercial cargo and bids up the price of
residual space.

Deregulation of ocean shipping will
offer only some assistance to U.S.
shippers seeking to reach new mar-
kets with competitive products. While
more opportunities should be avail-
able to shippers to negotiate rates
and service terms and to exert more
influence over the actions of shipping
lines, shippers will not gain significant
leverage with foreign flag carriers with
whom they must also deal.

CSX Corporation

c

Chessie Sxj

sclln

Family Lines Rt

Chessie System Rcnlnoads and Fan .:
Rail System are units of CSX Carper

XQueensgcrte
n Classify More
an A Million
ilroad Cars A Year.

:

em service is all about:
ed, efficiency and depend-
lity. Day in, day out.
By using the latest
inology programmed to
rtion non-stop, Queensgate
1 classify over a million
s a year on 50 classification
;ks.

Queensgate's process
itrol systems, closed-circuit
■vision and computerized
rimunications switching
re cut the time it takes to
ve an incoming car to the

proper outgoing train in half!

This may not be the kind
of operating technique you'd
associate with a railroad.
But then we're not just any
railroad.

And we'd like nothing
better than the chance to
prove it to you.

So no matter how, what or
where you've been shipping,
call us toll free (800) 368-2792.
Or write: Single-System
Service, PO. Box C-32222,
Richmond, VA 23261.

CSX

CORPORATION

America's

Largest

Transportation

And Natural

Resource

Company

THE IMPLICATIONS OF
DEREGULATION FOR
MANAGEMENT

In sum, deregulation has intro-
duced greater complexity and com-
petition into much of the U.S. freight
transportation marketplace. As a
result, the reliability, costs, and ser-
vice associated with many carriers
have changed. Shippers' preferences
and choices of transportation modes
have changed as well. And these
changes have been further influenced
by shifting fuel prices and a reces-
sion. The trade-offs and advantages
of a shipper's transportation network,
therefore, are constantly changing
and must continually be reappraised.
As a consequence of deregulation
and rising energy prices, transporta-
tion costs have risen markedly as a
percentage of total distribution costs,
and distribution costs have risen as a
percentage of sales. As a result, the
focus of distribution management in
most manufacturing industries has
shifted from controlling inventory and
warehousing costs to much greater
emphasis on controlling transporta-
tion costs and supply.

Insuring the price, quality and
reliability of a shipper's transportation
network is the goal of distribution
management. Because of the
increase in transportation costs, it is
more important than ever to assure
that distribution strategy enhances a
company's overall corporate goals
The greater involvement of senior
management in distribution planning
is more likely as a result of the
changes and challenges brought on
by transportation deregulation.

Many critical questions should be
addressed now by distribution man-
agers—whether to supply tranporta-
tion internally or buy outside; how to
alter the configuration of warehouses
and distribution centers; whether to
cooperate with other shippers; how
often to ship and in what quantity;

what mode to select and how to influ-
ence its supply and cost

Whatever advantages a shipper's
distribution system once enjoyed may
be nullified as a result of deregulation.
It is important, therefore, for shippers
to analyze the strategic direction of the
company in relation to competitors
and to changes in the transportation
market, to insure long-term supplies
of transportation, and to develop a
distribution strategy that allows maxi-
mum flexibility to react when service
and cost factors change. One major
manufacturing firm's new facility in
California, for example, has been built
to operate efficiently with both a truck-
or rail-dependent distribution system.
While this type of plant configuration
may not be feasible for most shippers,
an activist role is important.

Results of a survey recently con-
ducted by Booz-Allen & Hamilton
indicated that shippers are taking
steps to minimize potential supply
disruptions, secure more favorable
services and rates from carriers, and
circumvent pricing complexities.
These step include:

• Shifting plant and warehouse con-
figurations and consolidating ship-
ments

• Reducing inventories, product
lines, and shipment frequencies;

• Streamlining private fleet opera-
tions and stepping up the use of
intermodal systems and agents

Distribution managers today need
broad experience in planning and
implementing corporate strategy; inti-
mate knowledge of carrier operations,
regulatory issues, and marketplace
constraints; and willingness to
assume a higher level of risk and
adopt an aggressive negotiating
stance. The more distribution costs
rise as a percentage of sales and the
more those costs vary as a result of
deregulation, the more strategically
important is the distribution function.

Shippers may enjoy being courted

by carriers now, but in the longer ij
the initial glow from deregulation n
dim. The failing health of many can
riers, the continued deterioration c
transportation facilities and equip-
ment, and increasing managemer
complexities may result in unreliat
transportation service and wide fli
tuations in price.

Although deregulation is not the
sole cause of the financial distress
the transportation industry, the inte
price competition it engendered h
certainly exacerbated problems b
lowering both revenues and marg
Earnings continue to be too low to|
meet the industry's huge investme
needs.

Service may deteriorate if the
industry cannot maintain or invest
new equipment; marginal routes c
customers may be dropped;
advances in technology may not t
forthcoming; and shippers as well
carriers may not be able to make
needed investments or to follow b
ness plans.

From the vantage point of 2 yea
experience, it is safe to say that
deregulation has been a mixed bl
mg. Somereregulation is probabh
inevitable, and shippers may evej
ally take the lead in calling for son
stabilization in the industry. Nowtlf
the pendulum has swung from pel
sive regulation to substantial relia;
on the marketplace, shippers will
that the ideal position is probably
somewhere in between.

Booz-Allen & Hamilton, Inc. is a te
nology and management consult!
firm. John F. Wing is Managing Ofj
of its Transportation Department's)
Consulting Division. Also contribi
to this article were: Charles W He
David N. DeBord, Paul O. Robert:
Leo J. Donovan.

New freedoms. New ideas.
New benefits for everyone.

New horizons

- ror Hmencas rreigni

railroads.

America's freight railroads are beinq freed

from overregulation and the real winner is
the public— the consumers of rail-delivered
goods.

With less government interference since
the passage of the 1980 Staggers Rair Act,
railroadsare better able to compete in the
marketplace. Using options long available
to other businesses, railroads are develop-
ing innovative marketing programs that are
making rail shipment much more efficient
and cost-effective.

For example, now that they can sign long-
term contracts, railroads are offering price
and service incentives in return for guaran-
teed volume. And, with the deregulation of
piggyback (the movement of truck trailers
and containers on rail flatcars), railroads
now are free to change rates when neces-
sary to meet competition, putting more traffic
on the rails— and less on the highways.

Reduced regulation has given railroaders
the opportunities and the freedom to man-
age more efficiently. Railroads and those
who ship freight by railroad benefit. And so
do the final customers for goods shipped
by rail -the public.

For more information, write: "It's Work-
ing," Dept. 31, Association of American
Railroads, 1920 L St., N.W, Washington,
D.C. 20036.

Freight Trains.
America's most vital
moving force.

yr-1

IK

'COUHTRY STORE

e middle of the night,
o move your cargo from your front
door to its destination on the other side of the Atlantic.

Including intermodal specialists who will work with you to put together
the fastest, most economical route. Thousands of containers spotted all across
the country to give you quick pick up. Roll on /roll off service for freight
that's too big for a box. Direct calls to 8 major ports. And streamlined
documentation to expedite your order.

So if you've got cargo bound for Europe, don't take any detours. Go
straight to your ACL agent or foreign freight , _

forwarder. Or write Atlantic Container Line,
80 Pine Street, New York, NY 10005.
Phdne (212)908-2244. We're the major carrier
on the, North Atlantic, arad that makes your
; city one of our major ports.

ACL

Atlantic Container Line.
Number I to Europe.

Profiles

Even though lease obligations are sup-
posed to be liabilities, Michael Swerdlow
has found a way to turn them into assets
for some big-name bankrupt companies.

The alchemist
of Chapter 11

Swerdlow is a bright New York real
estate entrepreneur, and this is his
powerful idea: When a retail company
goes bankrupt, it often wants to close
many unprofitable stores that are un-
der long-term lease. What are those
leases but one more liability around

By Pamela Sherrid

ichael Swerdlow doesn't wear
a black cape or stir a steaming
cauldron, but he has handed several
bankrupt companies what amounts to
a philosopher's stone.

Real estate consultant Michael Swerdlow

"I don't need to pay for patina now. I have performed.

the poor debtor's neck, right? Wrong,
figured Swerdlow. They are potential-
ly a very big asset.

In the old days a bankrupt retailer
would typically shut his stores and
disavow the leases, leaving him open
to claims from the landlord. Alterna-
tively, the retailer might try to sell his
leases essentially for the salvage value
of furniture and fixtures.

But Swerdlow, a Bronx-born lawyer
who talks and eats with gusto, some-
times simultaneously, perceived
leases in bankruptcy in terms of their
fundamental real estate value. Old
leases, negotiated at rates below the
current market, ought to be worth
something to a new tenant, he fig-
ured. Specifically, they would be
worth the capitalized savings be-^
tween the old lease rate, say $1 per
foot, and the going rate, say $6 per
foot. "Swerdlow's new way to market
leases has been worth hundreds of
millions of dollars to companies un-
dergoing Chapter 1 1 reorganizations,"
says Farrell Kupersmith, a bankruptcy
expert at Touche Ross.

Swerdlow has profited, too. At age
39, he runs his own collection of pri-
vate companies and enjoys the good
life from a striking penthouse atop
one of New York's tonier East Side
hotels. Swerdlow's client list reads
like a Who's Who of troubled busi-
nesses. He has turned leases into cash
for Food Fair, Korvette and J.W. Mays,
and he just landed the Wickes ac-
count— the biggest retailer ever to file
under Chapter 11.

Like Isaac Newton under his tree,
Swerdlow came to his insight through
a painful blow. He ran a healthy sale-
leaseback business in the mid-Seven-
ties and was retained to liquidate Am-
terre Development, an owner of shop-
ping centers. Because Amterre's
financing was a mess, Swerdlow was
to be paid a part of whatever he could
realize above a $30 million mini-
mum. Then the Food Fair supermar-
ket chain, Amterre's major sharehold-
er and tenant, went under (Forbes,
Oct. 30, 1978). "I had 52 shopping cen-
ters all tenanted by a bankrupt com-
pany," Swerdlow recalls. "That di-
minished their value — in a way."

In a way? Somebody else might
have bashed his head against Food
Fair's boarded-up plate glass. Instead,
Swerdlow started to think about the
very low rents Food Fair had been
paying and the possibility of selling
its leases. "I could get good tenants
into the Amterre centers, which
would be good for me, and at the same
time raise money for Food Fair," he
explains.

There were lots of legal problems,

FORBES, OCTOBER 1 1, 1982

93

If it's the best
telecommunications system

on earth,
why on earth change it?

If you've ever tried to make a
:elephone call anyplace else on
jarth, you know what you've got
n America. The best telecom-
nunications system in the world.

But now you've heard the Bell
system is on the verge of major
;hanges. Changes in how we're
>rganized. Changes in the way you
an choose to do business with us.

Why change something that
vorks?

There's a very good reason,
he telecommunications business
self has changed.

For most of our history, the Bell
ystem has had one overriding
oal: universal service. Depend-
}le telephone service at reason-
Die rates for everyone who
/anted it.

Bolstering that goal were gov-
rnment policies determining that
slephone companies would oper-
te differently from most Amer-
:an companies. Within many
reas of the country, we were to
e the exclusive supplier of tele-
ommunications services,
.nd since the Bell System didn't
perate in a competitive market,

its rates and profits were strictly
regulated by the government. But
today the goal of universal service
has been achieved. Over 96% of
American households have tele-
phone service.

Now regulators and legislators
in this country are looking more to
the marketplace and competition,
rather than to regulation, to decide
who will provide competitive ser-
vices and equipment and how they
will be priced. In part, this stems
from an increasing sentiment in
this country for the deregulation of
major industries.

But perhaps most important is
the fact that technology has
changed the future of telecom-
munications. We are about to en-
ter a new era -the Information
Age. The technology of communi-
cations gradually has merged with
that of computers. The marriage
of these two technologies offers
the potential for an impressive
array of new customer services.
However, the blending of these
two technologies has also
blurred the boundaries between a
traditionally regulated industry -

communications -and the unreg-
ulated data-processing industry

The combination of all these
factors has led to a rethinking of
public policies on telecommunica-
tions. These changes will require
some changes in the Bell System.
But we can assure you that your
telephone service will still be
the best telecommunications sys-
tem on earth.

Along with your local Bell tele-
phone company, we'll be telling
you about any changes as they
occur. In ads like this.

In each of these ads you'll find a
telephone number. That number is
an important part of our "Let's
Talk" program.

This program has been set up
by the Bell System to help
you understand exactly what the
changes at the Bell System will
mean for you right now. And in
the future.

Call us. At 1 800 555-5000.

There'll be somebody to talk to.
Somebody to help you. To answer
your questions. To get you

inw,10us. Let's talk.

(§) Bell System

Most products
were never designed to be
assembled efficiently.

If your products are like most,
they were designed back in the
days of inexpensive labor and
inefficient assembly tech-
niques. Now there's a better
way.

And Bodine has it. It's called
automated assembly. And it can
actually improve product qual-
ity and consistence hile cut-
ting your personnel 'entory
and field service cos fact, it
can slash your overall : of as-
sembly by as much as 96

What's more, all it allv

takes to get the big advantage
of automated assembly is a few
small design changes and a
Bodine assembly machine.

To learn what automated as-
sembly is all about, write for our
free brochure. To learn what it
can do for you, call our Vice
President Frank Riley at (203)
334-3107.

The Bodine Corporation, 317
Mountain Grove Street, Bridge-
port, CT 06605.

Bodine

Profiles

though, starting with the landlords.
Some of Food Fair's leases had stan-
dard clauses stating that if the tenant
went bankrupt, the landlord could
immediately cancel the lease — leav-
ing Swerdlow with nothing to sell.
But he wasn't fazed. "We decided to
disregard anything negative and to
proceed in a totally Pollyanna fash-
ion," Swerdlow says.

The bankruptcy court wound up
agreeing with Swerdlow, saying that
if the landlord was going to get an-
other good tenant, he had no right to a
windfall from Food Fair's troubles. "If
the landlord makes a bargain at $1 per
foot, why should he benefit by raising
rents, when the value should go to the

There were lots of legal
problems, but "we decided
to disregard anything nega-
tive and to proceed in a to-
tally Pollyanna fashion,"
Swerdlow says.

poor widows and orphans who owned
Food Fair's stock?" Swerdlow asks,
reenacting the glories of his argu-
ment. This right was up for grabs
when Food Fair failed but has since
been codified in new bankruptcy law.

After three years of hectic auctions,
Swerdlow brought in over $350 mil-
lion for Food Fair's real estate — about
$250 million from selling leases, the
remainder from property the com-
pany owned outright. "That's a hell
of a lot of money in any Chapter 1 1
proceeding," says Judge John Galgay,
who presided over the case. "It was
really the backbone of Food Fair's
reorganization plan." The company,
renamed Pantry Pride, now operates
as a smaller profitable chain in the
Southeast.

For his labors, Swerdlow earned a
fee of $10 million, a bargain for the
creditors compared with what it
would have cost if individual brokers
had handled Food Fair's hundreds of
properties. But Swerdlow's company,
Stone-East Associates, didn't get to
keep all that money.

In recounting his victory, Swerdlow
conveniently omits to mention that
he was then working with Eastdil, the
big real estate investment banking
firm, with whom he has now parted
ways. "We have to approve any con-
sultant appointment in a bankrupt-
cy, " recalls a banker who was on Food
Fair's creditors' committee. "Swerd-
low was an unknown, while Ben Lam-

96

FORBES, OCTOBER 11, 1982

It doesn't take big money
for your pension plan
to benefit from
real estate.

Large or small, many pension and profit sharing
plans could benefit from an investment in real
estate. It's an excellent hedge against inflation. The
initial cash return is generally higher than common
stock dividends. And real estate lessens investment
risk through portfolio balance and diversification
of assets.

One problem for most plans has been that
getting into real estate has required a sizeable, and
often prohibitive, outlay of funds.

Mot any more.

With the new Real Estate Separate Account
offered by The Bankers Life of Des Moines, your
retirement program . . . even defined contribution
plans... can now invest in real estate with no

minimum deposit required. For as little as one
dollar real estate becomes an alternative or supple-
ment to the usual fixed income, equities and money
market options.

And The Bankers Life has the background and
experience any investment in real estate requires.
For over 30 years, we have been dealing nationwide
in commercial real estate. . . $2.3 billion in mortgages
and almost $500 million in property development
as an owner, manager or joint venture participant.

So, if your retirement plan, big or small, should
be considering the benefits of investing in real
estate, mail the coupon below or contact your local
Group Office of The Bankers Life. You'll find it not
only possible . . . but profitable.

THE
BANKERS
LIFE

BANKERS LIFE COMPANY DES MOINES, IOWA 50307

L

The Bankers Life, Group Sales
Des Moines, Iowa 50307

I'd like to know more about the different kinds of Employee
Retirement Funds.

Name

Title

Company

Add ress

City

FB102

. State -

.Zip.

_l

bert, Eastdil's president, was well
known to many of the senior people
in the bank. That added a patina of
credibility."

After Food Fair, Eastdil and Swerd-
low did several more deals together,
but now are competing for the same
business. Eastdil is saying unpleasant
things about Swerdlow, and Swerd-
low is saying unpleasant things about
Eastdil — and Lambert. "When a guy is
making more money than he's enti-
tled to, of course it annoys him when
the other guy leaves," Swerdlow de-
clares. "I don't need to pay for patina
now; I have performed."

With Swerdlow calling his own
shots in the credibility department,
his current association is with Drcxel
Burnham Lambert. With an eye
toward Braniff and other troubled air-
lines, they have set up a new company
to dispose of unwanted transportation
assets. ("An airplane is just like a
building that flies," Swerdlow ex-
plains.) No less than Harold Gencen,
chairman emeritus of ITT, is a direc-
tor of this venture.

Not every bankrupt retailer, of
course, can expect the pot of gold that
Food Fair received — it all depends on
the age and rates in the company's
leases. "For us, it's still more a ques-
tion of limiting liabilities," says Mi-
chael Vastola, chief financial officer
of Lionel, the troubled toy retailer
that came to Swerdlow for help in
March. Swerdlow also works for sol-
vent clients such as Outlet Co., a
broadcaster that is moving out of re-
tailing. "What Swerdlow says he's go-
ing to do, he does," says Bruce Sund-
lun, Outlet's president.

Because every lease that Swerdlow
tries to market has its own complicat-
ed legal and financial history, his
business doesn't lend itself to a cook-
ie-cutter approach. Negotiation is the
name of the game, often resulting in
unique solutions, such as the whole-
sale swapping of one shopping center
for another when the immediate prob-
lem is just one bankrupt tenant. Still,
Swerdlow has a Wang computer with
his own file breaking down retail
stores by size, type of business and
location. "When we want to market a
property we push a button and the
names of 14 potential candidates
come flying out," he says.

Lately, Swerdlow has been working
so hard that he has not been able to
compete in the yacht races that usually
keep him busy when he is not closing a
deal. He has boats custom-built for big
international events like the Miami
Nassau Race, which he won in 1980.
But what — heaven forfend — if retailers
stop going bankrupt ? Will Swerdlow be

the first victim of economic recovery?
He pooh-poohs that idea. "Food Fair
failed in a rising retail economy," he
says.- "If management is bad enough to
make a company fail when times are
good, then I can really do a good job
because others are expanding."

Nowadays, of course, Swerdlow
owns real estate of his own and has
plans for other "special situations in-
volving undervalued assets." Given
his winning record, chances seem
good that Swerdlow will turn dross into
gold even in a shining economy. ■

There is more to Manville s financial trou-
bles than those asbestos lawsuits.

Why didn't the
creditors notice?

By Barbara Rudolph

ASBESTOS LAWSUITS FORCED $2.2 bll-
,lion Manville Corp. to take refuge
in Chapter 1 1 two months ago. But
asbestos isn't the whole story.

Kidder, Peabody's Robert Levine
and Barre Littel — experts in cash flow
analysis — argue that you could have
spotted Manville's main problems as
far back as 1979. The company earned
$115 million that year, but its excess
cash flow — the amount the company
actually could spend on growth — had
already begun to turn negative, as de-
clining earnings were compounded by
rising interest expense and cash divi-
dends. By 1980 excess cash flow had
sunk to a negative $137 million and
by 1981 it was a negative $222 mil-
lion. Says Littel, "That was clearly
inadequate to support the asset base
of the company." A Manville spokes-
man says only that "we take excep-
tion to the simplistic assumptions" of
cash flow accounting.

During those same years the com-
pany was increasing its cash divi-
dends, from $39 million in 1978 to
almost $70 million last year when
Manville paid out more in dividends
than it earned.

Over on the balance sheet, Man-
ville's problems have a great deal to
do with the cost of an unfortunate
acquisition — asbestos litigation not-
withstanding. In [anuary 1979 Man-
ville bought Olinkraft, Inc., a forest
products company, for nearly $600
million, or about 15 times earnings.
They shelled out almost $300 million

in cash — "That would come in handy
now," says Kidder's Littel — and an-
other $300 million in convertible pre-
ferred stock.

It is unfortunate that Olinkraft is a
forest products company, a business
that has seen hard times lately. The

acquisition turned out to be "dilu-
tive." Manville saw no dollars in in-
creased cash flow as a result of it.
Only dollars going out.

Manville counted that preferred
stock as equity, not debt. That would
mean a comfortable debt-to-equity ra-
tio of l-to-2. But is that preferred real-
ly equity? It contained a sinking fund
provision, which means that the com-
pany must gradually pay back the
Olinkraft stockholders. If you reclas-
sify that stock as debt, not equity, the
company's ratio is about 1-to-l — a
distinct deterioration. Even without
the asbestos liabilities, Manville was
not a paragon of financial health. ■

98

FORBES, OCTOBER 11, 1982

J JAGUAR

A limited edition sedan by the coachbuilder
whose luxury, finish and finesse
have satisfied royalty for generations.

•-jhe Vanden Plas is that automotive
J rarity, a truly limited edition . And while
aguars are luxurious, the Vanden Plas is
;xercise in pure indulgence. The dash-
rd and door panels are inlaid with spe-
y selected burl walnut veneers. The
ler faced seats have been modified so
all passengers can enjoy armchair corn-
There are handy map pockets for rear
passengers and two swivel reading
3s. Adding luxury to luxury: specially
3r\ throw rugs have been fitted over the
>eting. Even the Vanden Plas colors are

special and exclusive among Jaguar sedans.

Yet perhaps the most attractive feature of
the new Vanden Plas is that it is a Jaguar
Series III at heart. This means that the car
moves under the silken power of Jaguar's
electronically fuel injected double over-
head cam six. Like all Jaguars, the Vanden
Plas handles with the reflexes of a sports
car. The steering is rack and pinion and
notably precise. The car's feel for the road is
sure and stable because it has fully inde-
pendent suspension on all four wheels. And
power disc brakes on each wheel assure

smooth and steady stopping power. The
complement of luxuries is full and thought-
ful: the heating and air conditioning adjusts
itself automatically once you have selected
your preferred temperature. There is cruise
control, a power sunroof, power door lock-
ing and antenna, and a new AM/FM stereo
radio with digital scan tuning and cassette.
Come. Drive this most elegant edition of the
best Jaguar ever built. For your nearest
dealer, call toll free: (800) 447-4700, or, in
Illinois, (800)322-4400.
M Jaguar, Leonia, N.J. 07605

"I don't think any other computer could have
grown with us the way our Datapoint has."

— Riley Jackson

VP, Information Systems

First Interstate Bank ol Washington,

Seattle

First Interstate Bank's
computer was the
right size when they
bought it, and stayed
the right size as the
company's data pro-
cessing needs grew.
That's because they
bought Datapoint's expandable comput-
er system, the ARC"' local network.

The ARC is expandable in a way no
other computer is. You can actually
increase its computing power. So, when
First Interstate wanted their computer
to do more work for more people, they
just plugged in more Datapoint proces-
sors, storage disks, terminals, and
printers. The ARC wasn't slowed by the
added work because they were adding
computing power with each expansion.

"So far we've expanded our adminis-
trative computer system from 30 users
to more than 100," Jackson says. "The
expansion steps are so simple that I really
don't pay much attention any more. If
somebody has a cost-justifiable job he
wants to do with the ARC, we just plug
in the new equipment he needs and he's
on the system. The other users are
unaffected.

"Compare that to the huge effort that
usually goes into upgrading a company's
computer. Upgrading the ARC is sim-
pler than buying a company car."

Never again face the hassles
of computer replacement

With the ARC, your company is spared
the trauma of outgrowing its computer
and starting over with a bigger one. And
because the ARC : stem is expand-
able, you can keep all your people on one
system. You're never forced to keep

Computing Small — ^

power computer

Over 's replaced
capacity

To grow with ordinary computers, you throw out a
little one and bring in a bigger one. You almost always
have too much computer or too little.

duplicate files in several computers.

Some other companies call their com-
puters "expandable." But check to see
what that really means. For some,
"expandable" means there's a bigger
computer in the product line so you'll
have something to move up to when you
outgrow the first one. For others, it
means you can add more memory. For
still others, it means you can connect
several computers together in a net-
work. But can those "expandable"
systems grow in processing
power? ARC can.

The most widely
used local network

Datapoint pioneered the
concept of local networks
when the ARC was intro-
duced more than five
years ago. Now there are
more than 4,000 ARC
systems in use, far
more than any com-
petitive system, and an
experienced service
organization supports
them worldwide.

Datapoint computer
systems, including the
ARC, will work with
Datapoint word pro-
cessing, electronic

With Datapoint 's expandable computer, you can add
computing power in small, inexpensive increments,
closely matching capacity of the system to user needs.

message, and telephone systems. You
can assemble a single, comprehensive
information system and that system will
be expandable, too.

For more about Datapoint, call (800)
531-5639. In Texas, call (800) 292-5099.
Telex 767300 in the U.S.; 06986622 in
Canada; or 923494 in Europe. Or write
Datapoint Corporation, Corporate
Communications T41FB, 9725 Data-
point Drive, San Antonio, Texas 78284.

lIUIIUHlimiUi

The Payless Cashways home center chain
grows a lot bigger by encouraging its man-
agers to get a little richer.

Do it yourself

By Lisa Gross

AMONG THE SPREADING CHAINS of
hardware stores — now called
b home centers — that supply the
tools of do-it-yourself home repair to
America's suburbanites,
fast-growing Payless Cash-
ways Inc. does one thing
better than the others,
and that may be the se-
cret of its success: It
gives its store managers
more autonomy and great-
er incentives.

The manager of any of
98 Payless Cashways or
Furrow stores in the Mid-
west and Southwest con-
trols the store's inventory,
is responsible for pricing
and local advertising,
charts the store's own
business plan and hands it
to headquarters — not the
other way around. He sets
the net profit margin goals
that govern the incentive
bonus. The Payless Cash-
ways managers — many of
them with college de-
grees— earn salaries that
range from $22,000 to
$38,600, plus 3% of the
store's pretax profits, and
as much as 25% more if
certain net margin goals
are met.

Is the policy successful?
Look at the results: Since
1971 Payless Cashways
has grown from $36 mil-
lion revenues to around
$580 million in the fiscal
year ending Nov. 27. Earn-
ings have grown from $1.8
million to an anticipated
$23 million this year,

with return on stockholders' equity of
more than 20% .

Where did Payless come up with
the incentives idea? In Pocahontas,
Iowa (pop.: 2,352), home of the first
store opened in 1930 by company

Payless Cashways' Stanley Covey (left) and David Stan/e\
"There's a good ten years before maturity."

founder Sam Furrow. As Furrow
opened more stores in Iowa and Min-
nesota, he gave his managers a piece
of the ownership of each subsequent
store. The incentives worked, and by
1969, when Payless went public, it
had 16 stores with $18 million sales.

Furrow had a few other ideas that
paid off. Payless, unlike most hard-
ware or lumber companies, is strictly
cash-and-carry. Why? "You have to
remember the building environment
after World War II," explains Chair-
man J. Stanley Covey, 52, whose first
job in 1949 was as a yard worker in
Furrow's second store in Early, Iowa
(pop.: 670 — the store still offers free
coffee). "Anybody in a retail business
tied to construction had difficulty
with accounts receivable. So we said,
if we're going to eliminate accounts
receivable, we have to replace it with
a low cash-and-carry price." Payless
caters to the homeowner, not the lo-
cal builder. That is why sales have
continued to grow in a disastrous peri-
od for new home construction.

How much of the build-
ing materials market does
Payless miss by refusing
to offer credit? President
David Stanley, 47, esti-
mates the lost market at
$18 billion out of a total
$54 billion home-im-
provement market last
year. But it's worth it:
"We have no stores depen-
dent on the new housing
market," he says.

After Payless made the
decision to drop credit in
the late Forties, Furrow's
stores began to pool their
buying, eliminating the
middleman distributor by
going directly to the man-
ufacturer. Not a new idea
now, but then, when the
chief competition was
mom-and-pop hardware
stores, a successful idea.

As the chain has spread,
its appetite for growth has
increased. Where it
opened two stores in
1975, it is now opening 14
or 15 a year. Stanley —
who left the executive
vice president's post at
the Minneapolis broker-
age firm of Piper, Jaffray &
Hopwood in 1980 to take
the president's job at Pay-
less— looks at the 270
stores of W.R. Grace's
home center division
(which includes Handy
Dan Stores), or the 341 re-

102

FORBES, OCTOBER 11, 1982

Meeting Japan's Challenge

Eleventh in a Series

Iffy THINGS

IF YOU'RE TRYIN
TO SELL THE
JAPANESE.

One of the most difficult challenges facing American business has been to find a way to
sell to the Japanese We think we have a solution.

It's a simple strategy and involves only a few basic steps. But it has worked for us.

Instead of just talking about building quality products, years ago we committed our entire
;ompany to doing it And in living up to that commitment we've proven that with the right
ipproach American manufacturers can meet the Japanese on their own home grounds.

A big key to success is having a strong enough commitment to get through the tough
nitial stages. We learned this in 1978 when, with the encouragement of the U.S. government,
Motorola decided to compete for some of the electronics business traditionally awarded only to
apanese companies by Japan's giant Nippon Telegraph and Telephone Public Corporation.

It was a bold undertaking that required substantial investments of time and money In fact,
ust to enter the competition it was necessary to complete an exhaustive survey of competitive
products and to translate and study all the pertinent Japanese specifications.

But if you want to sell to the Japanese
rou have to make the effort. So we did it

Then we did something even tougher.
/Ve committed ourselves to exceeding the quality
itandards they set for us.

And succeeded. In early 1982, after
:ompetmg with a number of Japanese electronics
nanufacturers, Motorola demonstrated in
igorous testing that our pagers exceeded NTT's
eliability standards, while complying with their
;tnctest price and delivery requirements.

As a result, Motorola was officially quali- Made in America

ied by NTT as a supplier of pocket pagers. The

irst and only non- Japanese firm ever admitted to this heretofore closed group.

Orders for over 50,000 Motorola pocket pagers are expected this year alone

In striving to exceed quality and reliability standards, though, it is equally important to
namtain high standards of customer service.

We are convinced that this success in the Japanese market is due largely to the way we
ipproach every one we serve.

It's a simple common sense way of doing business that says we pay as much attention to
he wants and needs of our customers as we do to the quality of the products we make for them.

We think there's one other basic factor that's also responsible for Motorola's success in
ellmg to the Japanese. Our participative management attitude.

One of our goals is to make every Motorola employee in every Motorola plant an effective
)art of the management team of our company. And because employees are motivated by this
:hance to participate and are rewarded for their efforts, we've found we're able to bring to bear
)n every product we make the enthusiasm, the dedication, and the attention to detail that result
i the highest kind of quality.

The kind of quality that has allowed an electronics company like Motorola to sell in a
:ountry where they make some fine electronics themselves.

(^) MOTOROLA A World Leader in Electronics
Quality and productivity through employee participation in management

t) 1982 Motorola Inc Motorola and (W)are registered trademarks ol Motorola, Inc

rxi

IF WHAT
YOU NEED IS
INFORMATION,
THIS IS
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tail building products outlets of Evans
Products, and says, "There's a good
ten years before this company suffers
maturity." Accordingly, the stock
market gives Payless a growth com-
pany's price/earnings ratio, approxi-
mately 15 times anticipated 1982
earnings of SI. 90 per share.

The multiple helps Payless finance
its rapid growth. Last year — with its
long-term debt already at 38% of cap-
italization— the company sold 1 . 1 mil-
lion shares of stock at $22.50 a share,
almost 16 times its 1981 earnings. But
growth multiples are as delicate as
eggshells and falter at the slightest hint
of an earnings downturn. A chain so
dependent on the performance of indi-
vidual managers is bound to come up
short now and then. It happened to
Payless when the chain ventured into
the Houston market in 1979. Payless
opened five stores in suburban Hous-
ton, appointed the store managers and
waited for the normal pattern of profit-

To finance its rapid growth
Payless sold stock at al-
most 16 times 1981 earn-
ings. But growth multiples
falter at the slightest hint
of an earnings downturn. A
chain so dependent on the
performance of individual
managers is bound to come
up short now and then.

ability in the first year. But the earnings
lagged because store managers, though
recruited from elsewhere in the chain,
were new at their specific jobs and to
metropolitan areas.

That said, there's no doubt that
Payless Cashways and similar home
center chains are islands of prosperity
in a dismal time for housing. New
houses are not getting built, making it
all the more economical to fix up the
old ones. For the suburban homeown-
er, reluctant to pay the labor rates of
professional plumbers and carpenters,
the 30,000-square-foot Payless Cash-
ways store — where all the necessary
equipment comes with advice on
such things as door hanging and fau-
cet replacement — seems the answer
to a prayer. And the Payless Cashways
store managers know their custom-
ers. That is why they stock the shiny,
expensive new faucets at eye level and
the plainer, cheaper ones at floor lev-
el, where the customer must hunker
down to reach them. The extra margin
on the shiny faucet, after all, helps with
the manager's incentive bonus, and
helps keep Payless Cashways Inc. at
the top of the do-it-yourself market. ■

ii ic

FORBES OCTOBER 11, 1982

SIGN A RYDER
TRUCK LEASE NOW
BEFORE TAX LAWS CHANGE
JANUARY 1,1983.

CONGRESS HAS AMENDED
THE 1981 TAX LAWS.
ACT NOW TO GET FULL
TAX ADVANTAGES.

The tax laws of 1981 affected
investment tax credits, depreciation
and residuals. But you can still take
advantage of the 1981 laws benefits
by signing a Ryder lease now and
putting new Ryder trucks
in service before
lan. 1, 1983.

And if you act now you get trucks
at 1982 prices.

A RYDER FULL
SERVICE LEASE OFFERS
OTHER ADVANTAGES.

The efficiency of Ryder-leased
trucks reduces the cost of truck
operations, frees up capital and
management time. The cost of the
lease is a tax deduction and
since it's an operating
lease, it improves
your financial
ratios.

RYDER DOESN'T
JUST KNOW TRUCKS.
WE KNOW TAXES.

Get together with a Ryder
transportation expert. He'll work
with you and determine if truck
leasing makes sense for you. If it
does, Ryder tax experts will work
with your financial people and
come up with the most attractive
tax structure.

GREATER EFFICIENCY,

COST SAVINGS
AND TAX ADVANTAGES.

A Ryder truck lease can give
you a more efficient transportation
system and tax advantages. Call
the nearest Ryder District Office
or mail the coupon now.

RYDER, TELL ME MORE ABOUT
HOW I CAN TAKE ADVANTAGE OFTHE
TAX LAWS BEFORE THEY CHANGE

NAMEATITLE

COMPANY NAME

TYPE OF BUSINESS

CITY/STATE/ZIP

PH( INI

R

MAIL TO: RYDER TRUCK RENTAL. INC
BOB CAMPBELL. EXEC VP FINANCE
RO BOX 520816
MIAMI, FLORIDA 33152

RYDER TRUCK LEASiMG AHD mMMG

A SkRVICL Of R)l» R SYSII M

An Arizona utility is showing the world
how to expand, raise capital and still keep
both regulators and shareholders happy.

I ight light

By Toni Mack

T|ucson Electric Power is not
your average stodgy utility. It
slipped through a loophole last
year to sell $289 million in tax-
exempt bonds — and not mere pollu-
tion-control bonds either — and is
playing arbitrage with the proceeds.
It gives executives stock options,
which would of course be almost
worthless at most electric companies.
At a time when many utilities are
relieved to be finished with crippling
capital programs, Tucson Electric is
expanding generating capacity by
half, about a decade before the rate-
payers will need it. And was there
ever a utility that went in for a $15.5

million rate increase and was offered
$17.6 million?

The explanation for Tucson Elec-
tee's good fortune? Most observers
agree it is Theodore M. Welp, the util-
ity's 48-year-old president. "He seems
to pull these things out of the thin air,
year after year," says analyst Barry
Abramson of Merrill Lynch. Tucson
Electric 's 20% net profit margin on its
$350 million in 1981 revenues is
about double the industry average.
Earnings per share were up 24% last
year, to $2.94 — and that's before an
86-cents-a-share extraordinary gain.

At a recent 22 — up about 70% from
two years ago — Tucson Electric com-
mon sells at a 20% premium to book
value, while most utilities slumber at

:\4

Tucson Electrics President Theodore M Welp

Selling electricity to other utilities makes power cheaper for Tucson.

90% of book or less. Says one admirer:
"Ted Welp is going to show you how
you can get rich by being a utility
executive, and still keep everyone
happy."

Yet taking the helm at Tucson Elec-
tric looked more like a suicide mis-
sion when Welp came aboard in 1974.
Welp, who had gotten his B.S. in fi-
nance on a baseball scholarship at
Santa Clara University, was then trea-
surer of Pacific Gas & Electric. He
could have looked forward to the
cushy financial vice president's job at
that cumbersome utility. Instead, he
took on Tucson Electnc's financial
mess. The company had been spend-
ing as much as it took in in revenues
each year to double its generating ca-
pacity. Then the oil embargo hit, and
all that capacity was an expensive
millstone.

So Welp made a virtue of necessity.
He found utilities to buy the excess.
Now Tucson Electric sells a third of
its output away from home, mostly to
California — land of "lifeline" rate
subsidies, immediate flow-through
(until recently) of investment tax
credits and other opiates for the elec-
torate. Utilities there can't get the
capital to switch from oil to cheaper
coal generation. But they can buy
from Tucson Electric at 1 to 2 cents
per kilowatt-hour less than they can
produce electricity themselves.

Result: Tucson Electric is in such
good shape now that it can fund 67% of
its $1.3 billion financing needs
through 1986 — for a coal conversion,
some transmission and pollution con-
trol equipment and a $612 million
power plant due to open in 1 985 — from
capital on hand and future cash flow.
Most of the other 33% will come from
refunding tax-exempt debt.

Those healthy finances are a credit
to Welp's fancy footwork. Under an
obscure rule meant to ensure funds
for small municipal utilities, a utility
that sells power in only two adjacent
counties may issue tax-exempt debt
in any amount needed. So last year
Welp sold off properties in one of the
three Arizona counties Tucson Elec-
tric served, and roild: $289 million at
rates slightly above 9% — that is, 3%
to 5% cheaper than on conventional
bonds. Until the projects get under
way, Welp has been arbitraging the
proceeds at double-digit interest rates.
Tucson Electric earned $26 million in
interest income last year.

To raise more capital, Welp has
been turning assets into cash. Last
year he transferred at cost to Utah
International, a General Electric sub-
sidiary, coal-processing equipment
and subleases on 70 million tons of

108

FORBES, OCTOBER 11, 1982

coal. Then he sold the leases on 40%
of the coal to institutional investors
at a $19 million gain to Tucson Elec-
tric. Welp expects to sell more coal
leases at a $30 million gain this year,
with 55 million tons still left.

It may seem at first that Welp is
selling Tucson Electric's birthright,
since the company is now 75% coal-
fired and plans to be 99% coal-fired by
1991. But because Utah International
can make better use of depletion tax
breaks, Welp reckons he can buy the
coal back as needed for 10% less than
he could have produced it.

The fancy footwork could not have
been done, of course, without the co-
operation of state regulators — regula-
tors so benign that in April they man-
dated a higher rate increase than the
company asked for. In fact, one regu-
lator, an ex-union official who's usu-
ally outvoted on rate requests, has
accused Welp of trying to woo him
with a promise to use union labor to
build a power plant. But the Arizona
regulators — and Tucson consumers —
should have much to be pleased
about. Though Tucson Electric's resi-
dential rates are still slightly above
the national average, those rates have
risen only 14% in the last five years,
while the national average has shot up
49%. Welp, with capital in hand, has
sworn not to ask for anything but fuel
adjustment increases until 1985. And
his expansion program also means
savings for the home folks.

Here's how: The Tucson Electric
plant due to open in 1985 will not be
needed by Tucson until 1988. By
building the plant three years early
and selling its output elsewhere, the
company can both avoid construction
cost inflation and bring the plant into
its rate base at a depreciated cost — an
estimated 35% savings for Tucson
consumers. Similarly, San Diego Gas
& Electric, Tucson Electric's biggest
outside customer, will buy enough of
a second plant's output from 1987 to
1991 to pay for 20% of the plant's
cost. "Each year, as we go out into the
future, we pull back the cheaper plant
for our customers," says Tucson Elec-
tric's Financial Vice President J. Rob-
ert Johnston. "It means a good deal for
our customers, a comparatively ex-
pensive deal for San Diego."

It's not just California that is selling
utility customers short. The same
could be said for Michigan, Missouri
and other states that seem to view
capital formation as evil. By one esti-
mate, U.S. utilities need to spend $50
billion to switch from oil to coal.
They can't do it without a warmer
regulatory climate — or without the
inventiveness of a Ted Welp. ■

FORBES, OCTOBER 11, 1982

h\t We Haw Loved f
For Centuries. You
I Will Love In Seconds, k

Since 1608 it's been the same old story.
People love Old Bushmills the second
they taste it.

Because Old Bushmills is smooth and
mellow. A smoothness not easily come by.

The secret lies in an ancient process
that goes back centuries to Ireland. To the
village of Bushmills, and the oldest whiskey
distillery in the world.

Here we pick the local barley ripe for
harvest in nearby fields.

We draw clear water from the River Bush,
water bom for whiskey.

We commit these and other choice
ingredients to our age-old triple distilla-
tion process.

Then our whiskey matures in
handmade oaken casks.

When it finally comes of age years
later only then is it worthy of our label.
Old Bushmills.

But, like 18 generations before you,
you'll know exactly what that means.
After your very first taste.

ifiilii ■-■ -1'ir'ir i^m.i I I,, - 1

The taste you don't have to acquire,

Distr ibuted data processing with a network of IBM small systems

ACE HARDWARE
NAILS DOWN
INFORMATION OUT
WHERE IT 'S NEEDED.

It takes the right tools to build
distributed data processing systei
that provides up-to-date informj
tion, when and where it's needec
Ace Hardware Corporation foun
the right answer in a network <
IBM small systems.

An IBM 8100 Information Sy
tern in each of Aces regional disti
bution centers has compressed tl
time it takes to process orders whi
expanding productivity. The 810'
are tied through phone lines to
large IBM computer in Ace's hea>
quarters in Oakbrook. Illinois. A
-the second largest chain of reti
hardware stores in the U.S.-is a c
operative acting as a wholesaler

r 4,000 independent retailers.
Ace has a reputation for service
s dealers, so the 8100 fits neatly
) the company's operations,
ith the 8100, we cut the time to
cess a supplier shipment into our
;ntory from four days to a mat-
of only four hours," reports
er Peterson, National Distribu-
Manager for Ace. "With the
0 and good people, we're not
king harder. Just a lot smarter."

Dramatic Gains

Peterson adds that produetiv-
in Aces distribution centers,
isured by the man-hours to
cess 1.000 orders, has shown a

dramatic 30 percent improvement
over the past three years. Put an-
other way, it costs 9.8 percent less to
process each line item, despite a 30
percent increase in wages.

Easy to Use

Ace says that in the distr ibution
centers, people with little or no com-
puter training find the 8100 easy to
use. And dealers like it because Ace
has become an even more reliable
source of product at the lowest pos-
sible cost.

"We demand the same high de-
gree of service from the companies
we deal with as our dealers expect
from us." says Jim Van Wert, Aces

Director of Information Services.
"With IBM, we've always received it.
from the people who helped us de-
velop the applications to service rep-
resentatives across the country who
can get there fast if we need help.

"Distributed data processing
was waiting to happen at Ace. The
8100 made it happen."

To learn how IBM small systems
could help put distributed process-
ing on your map, write to IBM.
1 Culver Rd., Dayton. NJ 08810. Or
call, toll-free, IBM Direct 1 800 631-
5S82, Ext. 7.

Alaska and Hawaii, — —

I 800 526-2484, = =£" ==£=
Ext. 7. ===£~B

How Heinz Tony O'Reilly kept competitors
at bay with a mix of firm prices, reduced
costs and increased advertising.

Potato peel
and prime time

Heinz President Tony O'Reilly

National brands have overrun regionals "like the advancing Red Army."

By Eamonn Fingleton

NEXT TIME YOU'RE HAVING A
hamburger, take a look at that
bottle of Heinz Tomato Ket-
chup in front of you. See any differ-
ence? Same old burger-splattering
stuff you have always used, right?

Well, not quite. H.J. Heinz Co.
President Anthony J.F. O'Reilly has
made a few changes in his company's
best-known product. Oh, you prob-
ably won't notice them. He has
halved the cost of sweetener, one of
the most expensive ingredients in
ketchup, by substituting fructose for
sugar. Heinz has switched to bottles
made of thinner but stronger glass —
thus cutting not only packaging but
transport costs. And it is using new
breeds of fleshy tomato that were spe-
cially developed for higher solid con-
tent— enabling Heinz to cut its toma-
to tonnage.

The cost blitz on ketchup and other
Heinz products is one-half of Heinz'
battle against competing brands and
against generics, which elsewhere in
the industry have been eating old-line
brands alive. The other half is to bom-
bard consumers with $240 million of
advertising and promotion a year —
twice the level of four years ago.

O'Reilly, a Dublin-born lawyer who
got his start in marketing by develop-
ing a new brand of Irish butter, puts it
this way: "By widening our margins
we have created reinvestable funds
that we have spent on advertising. We
think that is a far better way of mar-
keting our products lastingly than to
engage in a price war."

The linchpin of his strategy is to go
all out for number-one brand status in
every market. "Being number one
gives us economies of scale and at the
same time allows us to put a few extra
pennies on the price," O'Reilly ex-
plains. "That gives us the margins for
our advertising. And advertising
strengthens the brand."

That was good news for Campbell,
whose soups Heinz had been trying
unsuccessfully to push off the shelves
for years. In the early Seventies Heinz
pulled out of the soup race except for a
residual private-label business. It goes
against the grain for O'Reilly to make
a generic product. But he made an
exception in this case, partly because
of the big writeoff involved in scrap-
ping an efficient modern production
facility.

So far O'Reilly's market-leader
strategy has shown impressive re-
sults. While holding prices more or
less stable in real terms, Heinz' mar-
gins before marketing expenses have
climbed steadily from 5.7% to 8.5%

112

FORBES, OCTOBER 11, 1982

The St. Andrews Links Trust,
rirough the 300 Club of
it. Andrews, invites you
o subscribe to a limited
leserved Rights Scheme
t'hich guarantees a week's
;olfing holiday for two persons over a
onsecutive five year period, at a cost of
■4,025 (inclusive of UK tax) payable in
atal in advance, to the St. Andrews
.inks Trust bankers.

With a distinctive history steeped in a
;reat tradition of royal and ancient
portsmanship, St. Andrews in Scotland
las long been regarded as the "Home of
loir, and for most players it is the most
irestigious playing location. Whether it
s playing host to top class professionals
t to enthusiastic amateurs, no other
own has attracted such an impressive
nternational following and so greatly
nflueneed the game's development.

*l unique opportunity

Subscription to the 30( ) Club offers each
nember and accompanying partner an
ixclusive holiday package embracing
ted, breakfast and dinner in a twin-
ledded room at the luxurious Rusack's
Marine Hotel and several rounds of golf
m all the courses at St. Andrews
including the world famous Old
bourse) . The number of Reserved
lights is limited to 300.

>t Andrews Links Trust

The St. Andrews Links Trust operates
mder an Act of Parliament and has the
ontrol and management of the Links of
it. Andrews. Rusack's Marine Hotel is
vholly owned by the Trust and the 300
"lub of St. Andrews has been set up by

St Andrews-
the home of Golf

the Trustees as a very exclusive club to
provide facilities for its members to play
golf at the very cradle of the game and
live in gracious and comfortable
accommodation.

St Andrews Links
the Old and the New

Each Reserved Right entitles a
member (or nominee) and partner to play,
over one week a total of seven rounds
on the St. Andrews Links, according to
the following pattern: 2 rounds on the
world famous 15th Century Old Course;
2 rounds on the 19th Century New
Course (perhaps more demanding and
difficult than the Old); 2 rounds on the
delightful 20th century Eden Course and
1 round on the redesigned 19th Century
Jubilee Course; all will be at reserved
times booked in advance.

Additional rounds can possibly be
arranged for the member who wants
even more golf.

Reserving your rights

The 300 Club Reserved Rights
Scheme will be operational for five
years from 1983. Applications for the
first year should be received by 31st
December 1982. To help in the allocation
of suitable weeks, member's will be

Joina
\fery Exclusive

Golf Club " ^

asked to indicate three
alternative weeks in
order of preference.
The most favourable
will then be selected
according to order of
application and your preference.
Applications for subsequent years can
be submitted, again with a choice of
three weeks, between 1st July and 1st
October of the preceding year.

Each week will run from Sunday
lunch-time, with the first game played
on either the Eden or the New Course
(the Old Course is closed on Sundays)
and will finish at approximately the
same time on the following Sunday.
Occasionally particular weeks will not
be available because of major
championships and similar events on
the Links.

If you would like to join the 300 Club
of St. Andrews, or, if you prefer, would
like further information about it, simply
complete the coupon below and return
it to the St. Andrews Links Trust. Please
note that membership will only be given
on receipt of the full payment of £4025.
In the event of all 300 memberships
already being taken up, your money will
be refunded in full.

Payment should be made to the
Trust's bankers at the following address:
Royal Bank of Scotland,
113 South Street,
St. Andrews, Fife, Scotland.
Bank Reference: 83-26-28.
Account. St. Andrews Links Trust.
Account No. 00262139. ...

Rusack's Marine Hotel

Built towards the end of the last
century, Rusack's Marine Hotel reflects
the charm and elegance of gracious
living. Today it boasts high standards of
sophisticated contemporary comfort.

The Hotel overlooks the' 1st and IStli
fairways of the Old Course and the Royal
and Ancient Golf Club House, with
many of the bedrooms commanding
superb views of the famous Links. A
choice of rooms will be offered to 300
Club members in order of annual
application, a significant proportion of
which will have views over the Links
although this cannot be guaranteed.

To: SL Andrews Links Trust,
Golf Place, St Andrews,
Fife, Scotland, KY16 9JA

(1) 1 wish to become a member
of the 300 Club of St. Andrews
and have arranged for my bank
( ) to remit the full cost
to your bank.

(2) We wish to become a corporate member with
number of Rights.

(3) I wish more information about the 300 Club of
St. .Andrews. Please send me a copy of your
free colour brochure.

H-lete as appropriate

Signature

Name/Company Name

(In Block Capitals)

Address

Meet the people
who eome to
The Caymans.

Youmqy
be one of them!

Mostly professional or
managerial. Business executives.
Lawyers, doctors. Lots of divers,
honeymooners and families.

Many come just to relax. Enjoy
the near-perfect weather. Get a tan
on uncrowded, unspoiled white
sand beaches.

Others come to dive or snorkel in
the world's most spectacular
undersea wonderland. Play tennis.
Catch a big one off Cayman Brae.
Or go bone fishing on Little
Cayman. Or just do nothing. Read
a book and swing in a hammock
secure in the knowledge that they
are in a British Crown Colony with
a tradition of law and order and the
highest standard of living in the
West Indies.

More and more families, friends
and couples prefer to stay in
beautiful apartments with fully
equipped kitchens. Save a mint on
meals. Or tending bar. But in the
evening, most dine out in some of
the finest restaurants in
the Caribbean.

Since there are no casinos and no
golf, obviously these are very
special people. If you are one of
them, you will enjoy the Caymans.

An hour's flight from Miami on
Cayman Airways. A little longer
from Houston.

Good travel agents know about
the Caymans. Or write or call for
color brochure. (305) 444 6551.

Cayman W Islam*
Department of Tourism

250 Catalonia Ave.
Coral Gables, FL 33134

in eight years. Meanwhile marketing
expenditures have been raised from
1.4% of sales to 3.3%. Result: After
marketing expenses, net margins are
up, from 4.3% to 5.2%. According to
O'Reilly, that's second only to Kel-
logg's 8.9% among food industry ma-
jors. Yet as recently as 1974, Heinz
ranked number four, after Kellogg,
Campbell and Norton Simon. Heinz'
return on equity: 19.5%.

In earnings-per-share growth,
Heinz' 16.6% a year is the best among
the majors, surpassing even such thor-
oughbreds as Pillsbury with 15%.

One of O'Reilly's most satisfying
success stories is Star-Kist tuna, the
company's biggest brand, with sales
of more than $300 million a year. Its
market share has risen to nearly 30% .
Ralston Purina's Chicken of the Sea,
which for years vied with Star-Kist for
top place, has dropped to a reported
23%. And Heinz' tuna-based Nine
Lives cat food has captured a record
35% share, up from 30% in 1977.

Here again, the advertising push
was supported by cost savings in pro-
duction. O'Reilly explains: "For our
tuna we used to rely chiefly on the
catch off the coast of Peru. Today we
cover our requirements from bases
that are literally all over the world —
in New Guinea, Puerto Rico, Ameri-
can Samoa, Truk and France. We have
developed a network that gives us the
lowest-cost raw tuna of any major."

But O'Reilly is proudest of Heinz'
Ore-Ida processing subsidiary. Heinz
bought it in the mid-1960s when it
was nearly bankrupt, and in the last
ten years, thanks in part to the "All
righta" advertising campaign, has
steamrolled from 30% of the retail
french-fned-potato market to 55%.
The nearest competitor has an esti-
mated 3%.

He waxes lyrical about Ore-Ida's
technology: "Defect removal is now
done by a bank of suction devices that
are like a sidewall of cannons poised
behind an electronic eye that guides
them. We now just have an enormous
belt of glistening white potato, where,
before, we used to have rows of wom-
en standing on either side looking for
specks and bruises."

Yield per 100 tons of raw potato has
risen from 43 tons of finished product
to 52. More accurate machines mean
less is thrown away in peelings. Sliv-
ers too small to make french fries are
now used in a smorgasbord of new
products like Tater Tots.

O'Reilly is firmly resisting what he
regards as the siren call to mop up idle
capacity by producing for the generics
industry. He says: "If I tried to launch
a new company called Generics of

114

America, I couldn't raise a damned
dollar on Wall Street. There just is not
the margin there."

If anything, the importance of big
national brands will increase in years
to come, he believes. National brands
have already overrun regional brands
"like the advancing Red Army": Bulk-
buying discounts mean television ad-
vertising rates are much lower for na-
tional than for regional advertisers.
He sees more and more viewers being
siphoned off by cable so that the pull-
ing power of the big prime-time
shows advertisers love will be under-
mined. That means the cost of estab-
lishing a new brand, already $25 mil-
lion minimum, will rise. So existing
brands will be that much more shel-
tered from aggressive newcomers.

That said, O'Reilly is determined to
grab more than his share of the new
markets that do emerge. So he has

O'Reilly is firmly resisting
what he regards as the siren
call to mop up idle capacity
by producing generics. He
says: "If I tried to launch a
new company called Gener-
ics of America, I could not
raise a damned dollar on
Wall Street. There just is not
the margin there."

been concentrating on acquisitions.
He's patting himself on the back for
the recent purchase of Weight Watch-
ers International for $120 million. A
franchise operation that offers class-
room programs for dieters, Weight
Watchers had been experimenting
with a line of low-calorie foods, but
with mixed results. Under Heinz
management, Weight Watchers is
flourishing.

O'Reilly expects Weight Watchers
to grow by at least 20% a year, five
points faster than Heinz' core busi-
ness. Already products and services
sold under the Weight Watchers name
gross more than $400 million a year.

Further acquisitions will be strictly
in the grocery business, and they will
probably be small. Big mergers are out
for Heinz because O'Reilly thinks the
internal political problems that often
result are not worth the candle.

The easy thing to have done when
confronted with competition from
cheaper no-name products and sales-
hungry competitors was to lower
prices. Instead, Tony O'Reilly decided
to lower costs and use most of the
proceeds to increase advertising. In
the process he may have rediscovered
the birthright of H.J. Heinz. ■

FORBES, OCTOBER 11, 1982

THE LAND
AND THE
PROMISE.

"Soon the New York skyline
appeared in the gray sky, dim al
first, then sharply jagged, and j
the Statue of Liberty moved
toward us... this symbol of \
America — this enormous
expression of what we had a!'
been taught was the inner
meaning of this new country
— inspired awe in the hopefu1
immigrants."

As a nation we are not eas- j
/Aily awed by symbols.
But a few, like the 1 5 1 -foot
tall work of the French
sculptor Auguste Bartholdi, j
have taken on meanings
well beyond those intended
by their creators. Alone and
weathered, the durable lady
stands at the front door of
America with a symbolic
promise of a better life.

But to fulfill the promise
we must meet today's en-
ergy needs, while building
the bridge that takes us to
the place or time of energy
independence. At nutech
we are mindful of this need.
Our challenge is to provide
innovative engineering so-
lutions to virtually any
structural or systems engi-
neering problem. Without
consideration to comprom-
ise. The intent is basic. The
efficient and responsible
application of existing re-
sources will provide the op-
portunities for the future.

As engineering consul-
tants to the nuclear power,
electric utility, petroleum,
and construction industries,
we at nutech are providing
answers. Offering solutions.
And are helping make the
promise a reality.

nutech

A limited-edition poster ol the Statue
of Liberty is available by writing: Nutech,
6835-P Via Del Oru, San lose, CA 95119.

The automotive industry is busy
proclaiming, with maximum media
fanfare, that The Thrill Is Back.

Conspicuously absent trom
the festivities is the BMW320L Which
enjoys a certain advantage over
those cars currently welcoming back
performance.

The advantage of never having
bade it farewell.

PERFORMANCE THROUGH
REFINEMENT, NOT REDISCOVERY.

The 320i's engine is the basis
of those now competing success-
fully on the International Grand Prix
circuit, engineered for both heady
responsiveness and the grueling
test of endurance runs.

Its steering and suspension are
fine enough for the quick, reflex

corrections that driving conditions
of all kinds make necessary. And
both are complemented by a gear-
box whose "jeweled action and
surgical accuracy invite you to play
stickshiftconcertos"(Carand Driver)

In fact, the story of BMW is a
story of refinement— uninterrupted
refinement supported by a higher
proportional investment in research

"Based on average retail selling price Your selling price may vary according to the condition oi your car and whether you sell it privately or to a dealer *See your BMW dealer for complete details.
© 1982 BMW of North America. Inc. The BMW trademark and logo are registered trademarks of Bayensche Motoren Werke. A G.

nd development than any other
European car maker. Placing be-
ween the 320i and various rivals a
listance unlikely to be made up in
he current model year, the magic
i marketing notwithstanding.
REDISCOVER THE THRILL OF
SOLVENCY.
The BMW320i also outdistances
nost other cars, not to mention

many investments, in sheer preser-
vation ot capital.

According to the April 1982
N ADA Used-Car Guide, the average
320i sold during the past 3 years
has retained an astonishing 95.7%
of its original purchase price*

Your investment is further pre-
served by BMW's 3-year/36,000-
mile limited warranty and a 6-year

limited warranty against rust per-
foration.1"

All of which sets the 320i apart:
a genuine high-performance sedan
that also helps you rediscoverthe
thrill of solvency.

We invite you to dis-
cover and test drive it at
your nearest BMW dealer'
THE ULTIMATE DRIVING MACHINE.

BMW, MUNICH , GERMANY

Give Data Generals managers credit for
courage, but also question why the com-
pany savored its early success too long.

jtter late?

By Kathleen K. Wiegner

T| wo years ago Edson de Castro,
founder and president of Data
General Corp. — one of the fast-
est-growing companies of the Seven-
ties— was a wealthy man. His aggres-
sive minicomputer-making company
seemed still to be rolling along, earn-
ings rising 9.8%, to $55 million, on
$654 million revenues in the 1980
fiscal year. The stock sold at 87, its
highest point ever, giving de Castro a
fortune on paper of more than $27
million. Data General's cofounders,
Herbert Richman and Frederick Ad-
ler — who with de Castro had set up
DG in a converted beauty parlor in
1968 — had stock worth $20 million
and $12 million respectively.

But in that summer of 1980, Data
General was at a fork in the road. Its

momentum was slowing, and its
hard-selling tactics were increasingly
out of step with a changed market-
place. The time had come for manage-
ment to change Data General or to
sell it and reap the harvest of their
remarkable 12-year achievement.

The founders had a reputation as
the most unsentimental of men.
Their goal, as set out on splashy bill-
boards, was to build the richest mini-
computer company in the world.
Their DG was a hard-charging maker
of reliable, cheap computers that sold
to customers knowledgeable enough
to do their own programming and to
fix the machines when they broke
down. DG salesmen sold hardware;
they didn't wait around to service it.
And they gloried in the sobriquet
"bastards," being with the company it
was fun to hate. Even today ex-DG

Data General's Edson de Castro and Herbert Richman
"Bastards" no more.

employees meet yearly as the Former
Great Bastards of the Universe to sing
a ditty with lines like "Hold the sales,
hold the service, special systems
make us nervous. . . ."

Yet when it came to decision time
in 1980, the founders chose not to sell
out but to pursue the larger dream of
building a complex organization. De
Castro called his top executives to a
meeting on Martha's Vineyard, off
Cape Cod, and there mapped the
changes that would transform DG
into a broad-based supplier of com-
puters and office automation. Out
went small-company informality, in
came divisional structure. Bastards no
more, DG would be the company to
"engineer the anxiety out of comput-
ers" for a new mass market of com-
puter users who demanded service
and help with software.

De Castro, a reflective man of 44
who had designed several of Digital
Equipment's first minicomputers in
his mid-20s and left Digital to found
rival DG at 30, was thinking of the
ages. "American companies," he
muses, "appear remarkably success-
ful at creating technologies, products
and markets. But usually only for one
generation. We produce few encores."

To date, DCs attempt at encore has
been painful. Six vice presidents have
left, many to start or work for small
companies that will compete with
Data General. Turnover in the sales
force, always high in this industry,
swelled well above the industry aver-
age of 25% to 30%. Software develop-
ment for the company's entry into
personal computers got so snarled up
in the reorganization that the ma-
chine arrived with almost no soft-
ware, badly limiting its sales.

Earnings in fiscal 1981, excluding
an extraordinary gain, fell to $41 mil-
lion from $55 million in 1980, and
fiscal 1982 (ended Sept. 25) was worse,
an estimated $19 million — off 54%.
Net profit margins were only about
2.4% in the year just ended, where
once the company earned over 1 1
cents on each sales dollar.

DG stock sold recently at 27, less
than one-third of its historic high, and
de Castro's paper fortune has been
reduced to around $9 million, Rich-
man's and Adler's to $7 million and
$4 million. Yet the atmosphere is not
gloomy at DG's austere headquarters
in Westboro, Mass. De Castro is con-
vinced the worst is behind him, and
Richman, the organizer of the sales
force, declares: "We still have a lust
for making money, but if we satisfy
customers we'll do that — and get
more money for our services."

The company has invested heavily

1 18

FORBES, OCTOBER 11, 1982

Merrill Lynch Commodity Maxims:

INACTION
SPEAKS LOUDER
THAN WORDS.

Consider, for example, the inaction that says you re
speculating on your company's future. All you have to do is
not take steps to manage risks, such as interest rate, foreign
currency or inventory price fluctuations. In effect— without
even realizing it— you become a speculator,- and unwitting
speculation can be risky

Astute risk management, on the other hand, can
give you both protection and a marketing advantage over
less alert competitors. The key is working with an Account
Executive who understands the complexities of hedging
and has the resources to help you do it right. That's precisely
what you'll find at Merrill Lynch.

Most of our Account Executives specialize in partic-
ular areas, such as financial futures, grains or metals. Many
of them learned their skills by working in those industries
before coming to Merrill Lynch.

They have access to top-rated research covering
every major futures market in the world— research that
gains an added edge through the creative use of computer
technology.

They receive information fast through our worldwide
private communications system, and use the same system to
assure prompt execution of orders.

Merrill Lynch is a force on every major futures
exchange in the world. And most important, our company
is here to stay. Merrill Lynch has a long-term commitment to
our customers and impressive financial resources to back it up.

If you should be managing your company's risks
more carefully, don't speculate on where to go. Call and
ask for a copy of The Merrill Lynch Guide to Hedging. The
number is 1-800-526-3030 (ext. 941 ). In New Jersey, call
1-800-742-2900 (ext. 941).

WE KNOW COMMODITIES COLD.

Merrill Lynch Commodities Inc.

A breed apart.

1982 Merrill Lynch Commodities Inc

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in building up its service force —
called field engineering in the com-
puter business — and $30 million has
gone into Data General's Sunnyvale,
Calif, semiconductor operation in the
last several years to help turn out so-
phisticated microprocessors and other
high-density chips for future new
machines.

New executives have been brought
in, many from IBM. One of them,
Robert Miller, who was head of tech-
nology at DG beiore his recent ap-
pointment to head its three business
divisions, reports that he "killed more
projects at Sunnyvale than during my
15 years at IBM. Data General was
spending too little on a lot of things
rather than a lot on a few things."
Another former IBMer, David Chap-
man, as head of manufacturing is

streamlining production, helping DG
to bring out two microprocessor-
based systems selling for around
$20,000. Customers for such products
are largely original equipment manu-
facturers (OEMs), who repackage
them into specialized systems for pro-
cess controls or medical instrumenta-
tion. Such OEMs have historically ac-
counted for 60% to 65% of DG's
sales. Another traditional customer
group, small businesses with less
than $25 million in sales, will also be
receiving a new family of computers
to replace DG's five-year-old small
business products.

But the company's new pride is the
office automation system — combin-
ing functions like word processing,
electronic mail and filing — that it
calls CEO. Customers for such sys-

tems are large corporations that in the
past have more often been served by
IBM or Wang Laboratories. Success
with this customer group is impor-
tant for Data General's future because
demand for such office automation
gear could be a $75 billion market by
1990. In the fast-crowding office-auto-
mation field DG believes it can offer
more functions in an easier-to-use
system than many of its competitors.
At Westboro headquarters, at least,
DG people report the market's re-
sponse to be favorable.

As it has throughout its short histo-
ry, DG is once again coming from
behind. It played its most noted game
of catch-up in 1978 when, through a
heroic effort, it produced the next gen-
eration of minicomputers, a 32-bit
"supermini" to match Digital Equip-

Breaking away

Data General got its start in 1968
after Digital Equipment declined to
build a 16-bit computer designed by
one of its brightest engineers, Edson
de Castro. De Castro thereupon
gathered associated and venture
capital and started DG. He built the
computer, called Nova, and its in-
stant success forced his old employ-
er to play catchup. As the charts
show, competition between the two
companies was fairly close for sever-
al years. But lately DEC has been
pulling away. De Castro, undaunt-
ed, vows his revitalized company
will again make things hot for DEC.

Sales (Sbillions)

&

1

1

1

1

1

i

I

3.0

1

1

1

I

1

1

1

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h

1

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i

1

f

I

!

■

I

p

1

1

f

p

s

l

74

76 1

8 '1

'8

2

Cash flOW (Smillions)

550
500
450
400
350
300
250
200
150
100
50

1

KSESSSFM

wm

rm

76 78 '80 '82

Net profit margins tpe

^■■hhi mm

fl-V<fll

■■■■■■■■i
■■■»■■■■

immii

74 76 78 '80 '82

Long-term debt (Smillions)

500
450

350

250
200
150
100

■

■

■

■

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n

■

i

I

i

■

Fill

E

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in

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74 76 78 '80 '82

500
450
400
350
300
250
200
150
100
50

Capital spending t$miiiions)

■■■■■■■»

iir;
■ J

fM

■■!

76 7 8 80 '82

122

FORBES, OCTOBER 11, 1982

ment's product that was sweeping the
market. But such heroic efforts, while
thrilling (DCs was documented in
the bestselling Soul of a New Machine),
can drain an organization's resources
and retard development of other prod-
ucts. In the 1980s effort to match larg-
er rivals, DG has turned to a more
professional organizational style.

De Castro — a gifted engineer who
took his degree from the respected
Lowell Technology Institute, but who
harbors some wounded pride that
Harvard Business School did not in-
vite him back for the second year of
its M.B.A. program ("Maybe that's
why I haven't been promoted in the
last 13 years") — says, "In retrospect,
[ obviously would like to have done
many of these things earlier."

What held him back? Partly the
psychic comforts of small company
life. "All of us were terrific as long as
the company was small enough so
everyone ate lunch with everyone
dse," he says. But de Castro now rec-
agnizes the snare in such informal
decision-making: "We began to devel-
ap rules of thumb, which unfortu-
nately became averages. The average
is an arithmetic mean, but it is not
reality." What de Castro is saying is
that averages make decisions easy but
not necessarily correct. It is easier, for
example, to decree that R&D gets
10% increases across-the-board than
to allocate the money to the product
^roup that really needs it and deprive
another group.

DG — $800 million sales this year —
particularly could not afford such
carelessness because it has fewer re-
sources to work with than its far larg-
er minicomputer competitors — Digi-
tal Equipment, $3.9 billion revenues,
and Hewlett-Packard, $3.6 billion.

Can Data General regain star sta-
tus, be a standout company in the
different data processing markets of
the Eighties? The beginnings of an
answer will come next year when the
market's reception of its new prod-
ucts will be known. To be sure, DG
sets a good example. At a time when
American managers are being criti-
:ized for everything from shortsight-
edness to money grubbing, there is
reason to applaud DG's founders for
the risks they are taking to transform
their company.

Why didn't those same founders
plan and organize their company ear-
lier for size and greatness? Short-term
thinking? Not really. Mainly they
feared that structure would smother
initiative and tame aggressiveness. A
youthful mistake in hindsight but,
thanks to their current determina-
tion, probably not a fatal one. ■

FORBES, OCTOBER 11, 19K2

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123

The fact that the used-plane market is glut-
ted is the least of Pan Ams problems in
selling off a dozen of its wide-body jets..

Wishing upon
a Tristar

By Howard Banks

In a desperate bid to ease its fi-
nancial squeeze, Pan American
World Airways' chairman, Ed
Acker, is proposing to dispose of a
dozen almost-new long-range Lock-
heed 1011s. These Tristars, the
newest and most efficient long-haul
aircraft in Pan Am's fleet, are on the
block because they are just about the
only readily disposable assets left in
the airline's inventory. In the last 18
months it has sold off its famous
building on New York's Park Avenue
and its profitable Intercontinental
Hotels chain. The rest of the airline's
fleet is either old or uneconomic ( 747s
and early 727s), unwanted by any buy-
er (long-range DC- 10s) or needed by
Pan Am to stay in business.

Getting rid of these Tristars is easi-
er said than done. Acker's Tristars
will move only if the horrendously
complicated finance package that
goes with them (the basic documents
are 520 pages long) can be assumed by
a buyer. The key factor in the package
is an export-finance guarantee from
the British government, granted in
1979 to boost state-owned Rolls-
Royce, which makes the planes' en-
gines. Backed by this guarantee, $520
million was raised at an average inter-
est rate of around 9Vi% over 15 years.
Pan Am put up not a penny in cash.

Such government-backed and guar-
anteed (and usually subsidized) fi-
nance packages have become crucial
to selling aircraft to the world's air-
lines that otherwise cannot really af-
ford to buy. The Pan Am-Rolls-Royce

deal was no exception. In 1978 Rolls-
Royce was "persuaded" to finance the
whole package. This included the
down payment, which Rolls (i.e., indi-
rectly the British taxpayer) would be
stuck for in the event of a default by
Pan Am. The rest of the $520 million
is unconditionally guaranteed by the
British government, including money
for the American-made Lockheed air-
frames— a move that caused a major
row between the two countries at
the time.

The $520 million was sold to banks,
insurance companies and pension
plans as an equipment trust and in
two equal lumps. One was organized
by Citibank and involves British
banks Hill Samuel (which has a close
connection with Rolls' then-chair-
man), National Westminster and Bar-
clays, together with a number of Japa-
nese banks. The other half of the
money was raised from a group of six
leading American insurance compa-
nies, with GE's pension trust taking a
small stake.

Consortium banking is always
awkward. It becomes almost impossi-
ble when there is trouble. The greater
the number of countries involved, the
greater the potential for disagree-
ment. Each country has its priorities
and different methods of dealing with
problems.

Further complicating matters is the
question of cross-directorships among
the bankers and companies in their
own countries that may be rivals of
the troubled organization doing the
borrowing. Add to that the fact that,
today, the airlines are weak borrowers

as*

^ **

• • *

^

Pan Atn's Lockheed 1011-500 long-range Tristar,

For sale: barely used, good condition, cheaply financed.

124

FORBES, OCTOBER 11, 1982

LECTRONIC BANKING

It opens a whole new universe of opportunities for your company.

Electronic banking-defined in simple,
everyday terms.

Forget the fancy terminology and terminals.

At Citibank, electronic banking is simply an
electronic connection between your office and ours.
A connection that produces and delivers financial
se i vices at a moment's notice. Giving you the exact
information you need, when you need it. Helping
you use management and financial resources more
efficiently and more effectively by speeding such
time-consuming processes as balance reporting,
funds transfers, and daily reconcilement.

Sounds overly optimistic? Consider the facts,
then call your local Citibanker for Citibank's
electronic banking guide.

How electronic banking can meet
your specific business needs.

Citibankers can tailor electronic banking services
to help you manage your staff, your money, your
entire financial operation.

Case-in-point: Security. Passwords can be
assigned to provide access to information by dollar
amounts. By specific accounts. By type of transaction.
Even by time of day.

Numerous other electronic banking services
can be adapted to your needs, such as automating
funds transfers and other repetitive processes.
Or consolidating information on balances in all of
your accounts— even if your accounts are with seven
banks. Or in several countries.

rOMORRO

Electronic banking is one of those widely used business terms that isn't
really understood.

Here, from Citibank, the financial institution with over a half-billion dollars
committed to electronic banking, is an executive briefing explaining
how your company can profit from the latest technology.

Scan the facts, then send for brochure on the next page.

How electronic banking removes
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From cash management to information manage-
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For example, in the time it takes to read this line,
ectronic banking can speed funds transfer mstruc-
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To learn more, send for the electronic banking
brochure on the next page.

CITIBANKS

GLOBAL ELECTRONIC BANKING

THE CITI OF TOMORROW

Request this fact-filled brochure to

Gain immediate access to financial

learn how Citibank's electronic banking data and services.

services can help you:

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instead of days .

Improve cash management decision-
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•quickly End accurately.

Plus, hundreds of other practical
ways you can put the Citi of Tomorrow
and electronic banking to immediate use.

For your electronic banking guide,
compliments of Citibank, simply call your

Investigate financial transactions as local Citibanker or write on your

' fa#fe$dk as ^.business days

ment a

^manage your invest-
"olios.

jC 1982 Citibank. N
The Citi ot Tomorrow

corporate letterhead to: Citibank,
Electronic Banking, 399 Park Avenue,
New York, NY 10043.

ic Banking are service marks qfCirjhank. N . A

CITIBANK*

G4.06AL ELECTRONIC BANKING

facing strong lenders who, thanks to
those government guarantees, have
nothing to lose, and you begin to get a
feel for what Acker is up against in
the seemingly simple task of dispos-
ing of some aircraft. To make the deal,
Acker will need literally dozens of
signatures. Any participating lender
could refuse to go along and thus cre-
ate difficulties. The possibilities for
bickering are endless.

A clear lesson as to how difficult his
task is emerges from the unsuccessful
efforts made this time last year to
rewrite the two government-backed
export-finance packages then held by
Sir Freddie Laker of Skytrain fame (see
box). In the case of Pan Am and the
Tristars, the circumstances are some-
what different — Laker was already
technically broke — and there are dif-
ferent pressures on the lenders. But
the scope for similar disagreement is
obvious.

The lenders, for one thing, have lit-
tle incentive to agree to any rearrange-
ment that would increase their risk.
In the event that Pan Am should de-
fault, they are totally protected from
loss by the British. In that event, too,
they would be rid of loans that were
made at well below today's market
rate. The only possible attraction to
the lenders for approving a transfer of
the aircraft, then, is if any new lessee
(or two) taking over the equipment
trust would have much better credit-
worthiness than Pan Am. One re-
motely possible outcome, one that
would please the lenders greatly, is
that the People's Republic of China
might take over all 12 Tristars. Much
more likely, alas, is that several small
airlines — from Third World countries
already stuffed with foreign-financed
debt — will each bid for two or three
Tristars.

Pan Am would get no fresh cash
from any rearrangement. It would,
however, reduce the airline's debt
burden by $49.3 million a year. Acker
claims this would be additional sav-
ings, but that assumes the change in
planes would not cause loss of busi-
ness or diminished efficiency.

Pan Am needs every bit of relief it
can manage. In the first half of 1982,
Pan Am's airline operation lost $147
million (down a bit from a $171 mil-
lion loss in the same period last year).
It had hoped to make a good profit in
the third quarter just ended, but traf-
fic did not pick up so much as had
been hoped, especially in July. Pan
Am made an operating profit, but only
just. By the end of June its working
capital, Acker admitted, was down to
just $90 million, while the airline's
debt stood at 67% of total capital.

Since a revolt last year, led by Chase
Manhattan, no bank has been willing
to lend Pan Am additional short-term
money.

A measure of how concerned Acker
is to get rid of his Tristars is that he is
reported to be considering passing on
part of the interest saving to the new
lessee(s). In effect he would be further
subsidizing the already subsidized fi-
nance package.

There is still more to trip over. The
secondhand airliner market is, for a
start, glutted with wide-body aircraft.
Estimates vary, but there are said to
be 55 Boeing 747s, around 35 long-
range DC- 10s, and even 17 of the new
Airbus Industrie's A300 on the mar-
ket. And, to add spice, the last six of
the Tristars delivered to Pan Am are
covered by safe-harbor leasing, which
means that they cannot easily be dis-
posed of outside the U.S.

Without some lucky strike on the
Tristars, this fall could prove to be a
bloody one for Pan Am. Not only is
traffic not picking up for the airlines
in general, but also there are clear
signs that yet another fare war is be-

Sir Freddie Laker knows better
than most men the problems
Pan Am's Ed Acker faces. Months
of work went into the seemingly
simpler task of rescheduling Laker
Airways' two government-backed
finance packages. One was from
the U.S. Export-Import Bank, for
five DCT0-30s, and the other from
the Europeans (with a special Brit-
ish interest-rate subsidy) for three
Airbuses.

For many reasons the effort
failed. The American equipment
makers in the DC- 10 loan, Mc-
Donnell Douglas and General Elec-
tric, as well as Ex-Im, could not
agree to convert part of their out-
standing debt into equity in the
severely undercapitalized Laker
Airways. Nor, in the end, would
they consent to lend Laker new
money. And in the six-nation con-
sortium that made the Airbus loan,
two West German banks and the
Austrian bank wanted Laker de-
clared broke and the Airbuses sold
promptly, believing that way
would give them back more of
their money.

The killer blow, on top of many,
was delivered when Ed Acker
slashed Pan Am's fares in Novem-
ber 1981, and bargain-hunting pas-
sengers deserted Skytrain. Laker

ginning. Pan Am is already leading a
rush to reintroduce low-price
charters, particularly on the North
Atlantic.

The combined effect of these low
fares will be to devastate profitability.
Any alternative refinancing package
to the Tristars will inevitably bring
with it harsh conditions leading to
even greater cutbacks in staff and
routes than those already planned to
take effect this month.

As if this were not enough, passing
on the finance package that goes with
the Tristars would surely put Lock-
heed in a curious position. Lockheed
has decided to end production of the
planes because it was losing money
on them. The last five coming down
the line are still unsold "white tails"
(because no airline's logo is painted on
their tails). Since it was the original
beneficiary of Britain's largess, Lock-
heed can hardly object to Acker's ef-
forts to unload Pan Am's 12 Tristars.
But the availability of British-subsi-
dized finance on Pan Am's Tristars is
not going to make Lockheed's sale of
the last five new Tristars any easier. ■

Sir Freddie Iziker

Back, again soon?

Airways folded in February 1982.

Now Sir Freddie Laker, the
cheeky chappie of British aviation,
is close to bouncing back. Not as
an airline operator — no one would
lend him the money for that — but
as a tour operator. And guess
which major airline he is expected
to team up with closely, one that is
rushing back into charters? Cor-
rect: Pan American.— H.B.

Great circle route

FORBES, OCTOBER 11, 1982

129

THE CITI OF TOMORROW

Request this fact'filled brochure to
learn how Citibank's electronic banking
services can help you:
5 Complete transactions in seconds
instead of days.

Improve cash management decision'
. making by delivering information
qui^yimd accurately.

Invest^le financial transactions' as
far back as ^business days.

Kft^^B^^nanage your invest'

C 1982 Citibank. N
The Cm ot" Tomorrow '

HHHmnc Banking axe service marks ctf £J

Gain immediate access to financial
data and services.

Plus, hundreds of other practical
ways you can put the Citi of Tomorrow
and electronic banking to immediate use.

For your electronic banking guide,
.compliments of Citibank, simply call your
local Citibanker or write on your
corporate letterhead to: Citibank,
Electronic Banking, 399 Park Avenue,
New York, NY 10043.

CITIBANKS

;uH"k: N.A . GLOBAL ELECTRONIC BANKING

facing strong lenders who, thanks to
those government guarantees, have
nothing to lose, and you begin to get a
feel for what Acker is up against in
the seemingly simple task of dispos-
ing of some aircraft. To make the deal,
Acker will need literally dozens of
signatures. Any participating lender
could refuse to go along and thus cre-
ate difficulties. The possibilities for
bickering are endless.

A clear lesson as to how difficult his
task is emerges from the unsuccessful
efforts made this time last year to
rewrite the two government-backed
export-finance packages then held by
Sir Freddie Laker of Skytrain fame (see
box). In the case of Pan Am and the
Tristars, the circumstances are some-
what different — Laker was already
technically broke — and there are dif-
ferent pressures on the lenders. But
the scope for similar disagreement is
obvious.

The lenders, for one thing, have lit-
tle incentive to agree to any rearrange-
ment that would increase their risk.
In the event that Pan Am should de-
fault, they are totally protected from
loss by the British. In that event, too,
they would be rid of loans that were
made at well below today's market
rate. The only possible attraction to
the lenders for approving a transfer of
the aircraft, then, is if any new lessee
(or two) taking over the equipment
trust would have much better credit-
worthiness than Pan Am. One re-
motely possible outcome, one that
would please the lenders greatly, is
that the People's Republic of China
might take over all 12 Tristars. Much
more likely, alas, is that several small
airlines — from Third World countries
already stuffed with foreign-financed
debt — will each bid for two or three
Tristars.

Pan Am would get no fresh cash
from any rearrangement. It would,
however, reduce the airline's debt
burden by $49.3 million a year. Acker
claims this would be additional sav-
ings, but that assumes the change in
planes would not cause loss of busi-
ness or diminished efficiency.

Pan Am needs every bit of relief it
can manage. In the first half of 1982,
Pan Am's airline operation lost $147
million (down a bit from a $171 mil-
lion loss in the same period last year).
It had hoped to make a good profit in
the third quarter just ended, but traf-
fic did not pick up so much as had
been hoped, especially in July. Pan
Am made an operating profit, but only
just. By the end of June its working
capital, Acker admitted, was down to
just $90 million, while the airline's
debt stood at 67% of total capital.

Since a revolt last year, led by Chase
Manhattan, no bank has been willing
to lend Pan Am additional short-term
money.

A measure of how concerned Acker
is to get rid of his Tristars is that he is
reported to be considering passing on
part of the interest saving to the new
lessee(s). In effect he would be further
subsidizing the already subsidized fi-
nance package.

There is still more to trip over. The
secondhand airliner market is, for a
start, glutted with wide-body aircraft.
Estimates vary, but there are said to
be 55 Boeing 747s, around 35 long-
range DC- 10s, and even 17 of the new
Airbus Industrie's A300 on the mar-
ket. And, to add spice, the last six of
the Tristars delivered to Pan Am are
covered by safe-harbor leasing, which
means that they cannot easily be dis-
posed of outside the U.S.

Without some lucky strike on the
Tristars, this fall could prove to be a
bloody one for Pan Am. Not only is
traffic not picking up for the airlines
in general, but also there are clear
signs that yet another fare war is be-

ginning. Pan Am is already leading a
rush to reintroduce low-price
charters, particularly on the North
Atlantic.

The combined effect of these low
fares will be to devastate profitability.
Any alternative refinancing package
to the Tristars will inevitably bring
with it harsh conditions leading to
even greater cutbacks in staff and
routes than those already planned to
take effect this month.

As if this were not enough, passing
on the finance package that goes with
the Tristars would surely put Lock-
heed in a curious position. Lockheed
has decided to end production of the
planes because it was losing money
on them. The last five coming down
the line are still unsold "white tails"
(because no airline's logo is painted on
their tails). Since it was the original
beneficiary of Britain's largess, Lock-
heed can hardly object to Acker's ef-
forts to unload Pan Am's 12 Tristars.
But the availability of British-subsi-
dized finance on Pan Am's Tristars is
not going to make Lockheed's sale of
the last five new Tristars any easier. ■

Great circle route

Sir Freddie Laker knows better
than most men the problems
Pan Am's Ed Acker faces. Months
of work went into the seemingly
simpler task of rescheduling Laker
Airways' two government-backed
finance packages. One was from
the U.S. Export-Import Bank, for
five DC-10-30s, and the other from
the Europeans (with a special Brit-
ish interest-rate subsidy) for three
Airbuses.

For many reasons the effort
failed. The American equipment
makers in the DC- 10 loan, Mc-
Donnell Douglas and General Elec-
tric, as well as Ex-Im, could not
agree to convert part of their out-
standing debt into equity in the
severely undercapitalized Laker
Airways. Nor, in the end, would
they consent to lend Laker new
money. And in the six-nation con-
sortium that made the Airbus loan,
two West German banks and the
Austrian bank wanted Laker de-
clared broke and the Airbuses sold
promptly, believing that way
would give them back more of
their money.

The killer blow, on top of many,
was delivered when Ed Acker
slashed Pan Am's fares in Novem-
ber 1981, and bargain-hunting pas-
sengers deserted Skytrain. Laker

? A

Sir Freddie Laker-
Back again soon?

Airways folded in February 1982.

Now Sir Freddie Laker, the
cheeky chappie of British aviation,
is close to bouncing back. Not as
an airline operator — no one would
lend him the money for that — but
as a tour operator. And guess
which major airline he is expected
to team up with closely, one that is
rushing back into charters? Cor-
rect: Pan American. — H.B.

FORBES, OCTOBER 11, 1982

129

Why does Wall Street give Fleetwood a PIE
ratio of 22? The answer to that question
contains a valuable lesson.

Keeping its
powder dry

pany is to outside shocks.

The last time the good times rolled
for Fleetwood was fiscal 1979, when
sales surged to a record $800 million.
The next year they fell 41%, to $472
million, and Fleetwood lost $8.5 mil-
lion when the economy was socked
by rising gasoline prices and high in-
terest rates. Before that, there was the
boom of 1972, the bust of the oil em-
bargo in 1973.

Now the pendulum is swinging
again. Fleetwood's fiscal 1982 RV
sales, which provided about half of
the company's $581 million in rev-

By Ellen Paris

With gas prices and interest
rates both headed south,
Wall Street is high on
Fleetwood Enterprises, Inc., now the
nation's largest maker of recreational
vehicles (RVs) and manufactured
housing. It sports a multiple of 22
times earnings for the fiscal year end-
ed April, and 10 times next year's
expected $1.20 per share. But
Fleetwood Chairman John Crean isn't
letting this adulation turn his head.
He knows how vulnerable his com-

Fleetwood's founder-chairman John Crean
Even a microwave oven.

enues, increased 58%. Net income
quadrupled from the year before, to
$9.1 million. In the current year's first
quarter, motor-home sales jumped
100%, and net income for the quarter
alone was $5.8 million.

A lot of those RV sales were in
Fleetwood's $35,000-to-$45,000 top-
of-the-line models that feature "mini-
master" bedroom suites, full-size
showers and microwave ovens. Buy-
ers who shell out that kind of money
are not particularly worried about the
price of gas, only its availability. "If
you can afford a $2 cigar, who cares
about the price of matches?" cracks
Boyd Plowman, Fleetwood's senior
vice president of finance. Fleetwood
has a 32% share of this end of the
market, rivaling Winnebago for the
top spot. A step down the line, first-
time RV buyers are being drawn in by
a new generation of vehicles that get
50% better mileage than models of a
decade ago, thanks to better aerody-
namics, styling and lighter weight.

Much of the cheering on Wall
Street, though, is over Fleetwood's po-
tential in manufactured housing,
where it is now the country's largest
producer. Remember "modular hous-
ing," the big buzzword of the early
Seventies, but a disaster in the late
Seventies? Now it seems about ready
to amount to something. Until a few
years ago most states taxed manufac-
tured housing as if it were an auto-
mobile. The check went to the state
motor vehicle department, not the
city, so tax-hungry cities discouraged
manufactured housing developments.
Now about two-thirds of the states
tax it properly as real estate; and lend-
ers will make long-term loans at low-
er rates, something they wouldn't do
previously.

But Fleetwood isn't getting carried
away. It still has no long-term debt,
and is "pretty realistic," as Crean deli-
cately puts it. Crean is expanding, but
very cautiously. That means fewer,
but larger facilities, built-in modules
that can be shut down bit by bit when
demand shrinks again. All sales to its
1,400 RV dealers are for cash on the
barrel head — Fleetwood won't bear a
dealer's inventory risk.

The landscape is littered with the
bones of companies that were tempt-
ed by alluring growth prospects to lev-
erage themselves to overexpand in
RVs and manufactured housing. Why
was Fleetwood such a glittering ex-
ception? Because it always put pru-
dence and financial soundness ahead
of mindless expansion. This is a sim-
ple and obvious lesson for all busi-
nessmen. A lesson often demonstrat-
ed but still widely ignored. ■

130

FORBES, OCTOBER 11, 1982

Robert Brooks is the Wall Street insider
personified. He's also not having a good
year and feeling strangely confused.

By Jayne A. Pearl

Smart money?

Robert Brooks, a new breed of trader

"If you're an entrepreneur, you have to strike while the iron is hot.

Seven hours a day Robert
Brooks roams the floor of the
New York Stock Exchange,
buying and selling stocks for his per-
sonal account. Fifty years ago, Brooks
would have been called a floor trader.
Back then, infamous Wall Streeters
like Jesse Livermore and Arthur Cut-
ten were allegedly making great for-
tunes at the expense of individual in-
vestors. Today, however, the 38-year-
old Brooks is officially designated a
registered competitive market maker
(RCMM). Instead of profiting grandly
from "inside information," he scram-
bles to squeeze modest gains from
hundreds of small transactions. He's
among the first of a new breed.

Blue lights suddenly start flashing
atop booths across the cavernous ex-
change floor. Voices rise above the
clamor as several traders converge in
one corner. "It's a call-in," explains
Brooks, breaking into a fast stride. He
and other RCMMs like him must ral-
ly to help an exchange market maker,
or specialist, who faces an imbalance
of buy or sell orders. They are required
to buy or sell, with their own money,
at least 100 shares of the stock,
though there is no mandatory holding
period.

If that sounds like a losing proposi-
tion, it often is. That's why only 10 of
the 23 RCMMs are active today — far
fewer than the number of floor traders
who flourished as recently as 1977,
when the Securities &. Exchange
Commission imposed the current reg-
ulations. Still, Brooks, who has to an-
swer call-ins on most days, has plenty
of time to practice his own invest-
ment strategy: "Being on the floor
means it is impossible to be a funda-
mentalist," he explains. "You must
take a shorter-term view of the mar-
ket. I trade day to day, not month to
month, or year to year."

Once, for example, Brooks bought
7,000 shares of Nortek on a Friday
afternoon. The stock opened Monday
morning, down $1.50, when a specu-
lator had to unload 93,000 shares to
meet a margin call. "I was out $10,500
right there," Brooks says. The special-
ist bought more than 60,000 of the
shares, and the RCMMs got a call-in.
At that point, Brooks decided to buy
all 33,000 shares, rather than just his
mandatory 100. "I felt deep down in-
side I would make money," he ex-
plains. Nortek quickly bounced back,
and he did. "A lot," boasts Brooks.

This kind of on-the-spot trading de-
mands some knowledge of each of the
1,530 stocks listed on the exchange.
Brooks tries to have a feel for which

132

FORBES, OCTOBER 11, 1982

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companies are trading near their lows
and highs, which are moving up or are
on the way down and how various
industry groups are performing. He
keeps the latest copy of William
O'Neil &. Co.'s daily price graphs in
the pocket of his blue-and-white-
striped smock. And nary a weekend
passes that Brooks isn't glued to the
Trendline report of stock information
that arrives on his doorstep each Sat-
urday morning at 7.

The objectives are simple. Such
traders attempt to buy stocks they
feel are "oversold" or cyclical compa-
nies that are at the bottom of their
business cycle. Sometimes this
works, sometimes not. Last spring,
for example, Brooks loaded up on an
oil and gas drilling company.
But its "early movement"
was only a brief gasp before a
steeper fall.

Getting out wasn't easy.
The week before the mid-Au-
gust rally, Brooks tried to
close all bis positions to take
a worry-free week's vacation.
"I was supposed to be out of
the market at the bell Fri-
day," he says. "But when I
left I was still long 9,000
shares of the oil and gas drill-
ing company."

Then, when the market
went wild the next week,
Brooks was back on the floor.
"If you're an entrepreneur,
you have to strike while the
iron is hot. No one can do it
for you," he says. "My wife
yelled," he adds. That week
Brooks ended up trading 50%
more than his usual 20,000-
share-a-day load. By Thurs-
day, Aug. 19, his previously

at age 12. "I worked summers on pa-
per routes, amassed a fortune of
$1,000 and opened my own account,"
he explains. His father, 72 and still on
the NYSE floor today as a commission
house broker, was trustee. "We would
sit around and discuss what to do and
then he would buy or sell as custodi-
an," Brooks adds.

Through his father's contacts,
Brooks worked summers and vaca-
tions from Georgetown University as
a clerk on the exchange floor. Then he
became a "$2 broker" trainee at Stern,
Frank, Meyer & Fox. These men trade
for the accounts of other member
firms, and in the days before negotiat-
ed rates they earned $2 in commis-
sions for each 100-share transaction.

Do-it-yourself floor trading

If the smell of big money and the lure of avoid-
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Exchange. After passing an exam on all the appli-
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SEC and the exchange. Each has a passel of re-
quirements, which boils down to a minimum
liquid capital base of $100,000 on the NYSE.

When the trading begins, of course, there is red
tape. RCMMs, for example, must file daily re-
ports listing every transaction, and they can't
make trades that might have an effect on the
market. Also, all transactions of RCMMs are sub-
ject to stringent capital rules, including 50% mar-
gin requirements. Beyond that, you are on your
own. — J.A.P.

anemic oil and gas drilling company
had risen by $2.50 a share — an instant
profit of as much as $22,500.

Of course, it isn't always like that.
"Someone like me could get wiped
out overnight," explains Brooks,
pointing out that he once lost 25% of
his capital in a single day. He con-
tends that the long-term returns are
good, "but not extraordinary." How
much does he make to support his
north shore Long Island home and
vacationless family? He says he won't
even tell his wife. "The swings are too
great day to day and year to year."
Knowledgeable Wall Streeters, how-
ever, says RCMMs typically earn well
into six figures annually.

To do that, of course, a man has to
be a virtual encyclopedia of stock
data — and have that mystical "feel"
of the trader. That's where Brooks ex-
cels; he began dabbling in the market

Commission house brokers, on the
other hand, execute orders only for
the customers of brokerage houses.
Today there are some 840 brokers of
both types, but none may trade for his
own account as the RCMMs do.

In 1967 Stern, Frank contracted a
seat to Brooks — at a market peak price
of $515,000 — and he started on the
floor executing orders for other firms.
By 1977 Brooks had saved up enough
money to buy a seat of his own, which
then cost a mere $90,000. Then, when
the SEC created RCMMs on an ex-
perimental basis in 1977, he became
one of the first.

Brooks' workday is full of frantic,
split-second decisions and high pres-
sures. And despite the noisy milieu of
the exchange, his style of trading is
strangely lonely. Brooks maintains
only superficial contact with his col-
leagues: "When we talk among our-

selves, it's just whether we're long or
short the market, never our positions.
It's a question of dancing on the other
guy's grave." No after- the-market
drinks with the boys and only rare
social engagements with other traders
and their wives.

During the workday, Brooks
doesn't even grab a midday bite with
other members, but that's because he
never eats lunch — or breakfast. At
least not since he began trading.
"There's enough stress that I
wouldn't enjoy a meal," he explains.
"I always have positions and don't
like to be eating when things can hap-
pen and I might miss a move." De-
spite the pressures, Brooks stays com-
posed as others scream bids peppered
with obscene words and ges-
tures across the floor. His
speech is slow and deliberate
and his eyes are constantly
riveted on the stream of
prices crossing the NYSE
tape above the heads of the
traders. Spotting an opportu-
nity, he briskly moves to the
appropriate booth, where he
calmly strikes a bargain.

Until August, this year
was lean. "For the first time
since I began trading I was
losing money," Brooks says.
This summer he was "selec-
tively buying the weakness
in the market and waiting on
a daily or weekly basis for the
market to rally." But Brooks
never holds a position for
longer than two or three
months, which wasn't long
enough earlier this year to
make many of his positions
profitable.
Then came the rally. "I've

worked myself into the black,"
Brooks says. "Still, it's been a rough
year for me and for most professional
traders."

Why? Brooks isn't sure. "The mar-
kets have taken on a real volatility,
and it makes some of the older ap-
proaches, like selling if the stock goes
down 15% or buying if it goes up
20%, in need of reexamination," he
explains. "I think the best thing is to
be pragmatic and not be locked into
any one strategy."

That's hardly grounds for opti-
mism. In the midst of what may be-
come a major upturn, Robert
Brooks — who is as close to the stock
market as you can get — seems
strangely worried. This may mean
that the basis for the 1982 rally isn't
sound. Or it may only mean that on
Wall Street, just like anywhere else,
one can't see the forest for the trees. ■

FORBES, OCTOBER 11, 1982

137

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©1982 GRC

Bernie Fein sometimes calls himself a "gar-
bage collector. " But what he has in United
Industrial Corp. looks more like gold.

Look, Ma,
no hands

By John Dorfman

EVERY COMPANY SHOULD HAVE
"hands-off" managers like Ber-
nard Fein at United Industrial
Corp. The New York-based com-
pany's sales were less than $100 mil-
lion in the mid- 1 970s. They will prob-
ably top $250 million this year. Earn-
ings have been growing at better than
20% annually — to $11 million in
1981 — and UIC's return on equity
over the last five years has averaged
close to 20% .

Some say Fein has achieved all this
by leaving his four subsidiaries
alone — especially AAI Corp., a Balti-
more-based defense contractor, which
brings in 57% of the firm's revenues.
But it's not that simple. "If we were
doing something that didn't make
sense, he would find a nice, subtle
way of telling us," says AAI's execu-
tive vice president, Joseph Montal-
bano. What Fein clearly wouldn't do
is dispatch an "adviser" from head-
quarters. UIC has more than 4,000
employees, but only 10 work at its
Manhattan corporate offices.

To appreciate how Bernie Fein
works, you need to know his back-
ground. Fein, 74, was a corporate law-
yer until World War II, when he was
snatched up by the Air Force. It want-
ed him because of his early ham radio
experience (Fein's license, dated 1926,
was issued by Secretary of Commerce
Herbert Hoover). After the war, Fein
worked briefly for Bell Labs and for an
electronics firm, then embarked on a
series of remarkable corporate salvage
missions: Winthrop Products in 1947,
Ansley Radio in 1948 and Lanston
Monotype in 1955. All were on their
last legs when Fein arrived, and profit-
able when he left.

In 1958 Fein bought 8% of United
Industrial "because it was a cheap

stock selling for less than $5." He
never intended to take a management
role, but was pulled in to straighten
things out in the aftermath of a disas-
trous 1959 merger with Topp Indus-
tries, a West Coast electronics firm.
"Topp was run by a bunch of gung-ho
smart guys who took over UIC," Fein
recalls. "Within six months of the
merger, they had bought a cement
aggregate company and a road-build-
ing company, a small rubber company
in Ohio and U.S. Semiconductor in
Phoenix."

When Fein took over, UIC had $10
million of debt in default, a negative
net worth and was being delisted by
the New York Stock Exchange.

"Everyone expected me to file
Chapter 11," he explains. Instead,
Fein repaid his loans in full, partly by
selling off some of the subsidiaries the
Topp people had acquired. To this

day, UIC is almost debt-free. "A lot of
people tell me I am foolish for not
borrowing," says Fein — who gives
these critics no more heed than he
does those who would like him to
strip his company of its "nonglamor-
ous" subsidiaries.

Right now the glamour is AAI, for-
merly Aircraft Armaments, Inc. Its
specialty is electronic warfare train-
ing systems. Firms like E-Systems
and Loral build the hardware, but AAI
dominates the market for training and
simulation equipment to teach people
how to use it. The company also
makes pierside training systems for
the Navy. "That way you don't have
to take a huge ship out to sea to train
its crew," comments Willard Brown
of First Albany Corp.

On the ordnance side, AAI (as a
subcontractor to Ford) produces the
turret for the DIVAD anti-aircraft
gun. It makes loaders to shove Cruise
missiles into B-52s, quickly and pre-
cisely. And it has its eye on two other
projects that might make UIC a bil-
lion-dollar company by 1987:

• Blue-sky plan number one. The
Pentagon decides it doesn't want to
rely solely on FMC to produce its new
armored personnel carriers. Bowen-
McLaughlin-York, a subsidiary of
Harsco Corp., becomes a second-
source contractor on the $13 billion
project and implements a standing
agreement to subcontract for the tur-
rets from AAI.

• Blue-sky plan number two. The
Army, the Marines or a foreign power
places a major order for AAI's RDF
light tank. The company is a leader in
developing this controversial piece of
hardware (see box), and if it becomes

Bernard Fein at the controls of bis bam radio equipment

The license was issued in 1926 and signed by Herbert Hoover.

FORBES, OCTOBER 11, 1982

139

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140

popular AAI will be a major supplier.

Even without these bonanzas, UIC
is still doing nicely. Sales should hit
$600 million by 1986, with AAI pro-
viding much of the growth. But Fein's
other operations are by no means
dogs. Affiliated Hospital Products
(70% owned by UIC) accounts for
roughly one-quarter of current sales.
It is the world's largest producer of
disposable rubber surgical gloves.

Then there's Detroit Stoker, the
world's largest maker of coal combus-
tion-chamber feeders for industrial
plants, utilities and ships. High tech it
isn't, but Fein isn't troubled. "Busi-
nesses are like women's styles," he
says. "When they're in season, Wall
Street starts going gaga over them."

UIC's smallest division is Neo Prod-
ucts, a tiny plastics firm that chips in
a mere 3% of sales. Why bother? "I
bought it for nothing," says Fein.
"How can you lose?"

That kind of thinking has paid off
well for Fein and UIC's shareholders.
The company's stock, which has been
back on the NYSE since 1964, now
commands 12 times earnings. Its
price has jumped from 28 to 52 over
the past year, making Fein's current
22% ownership position worth about
$35 million. Despite his age, Fein says
he isn't worried about succession.
And why should he be? Brother Ed,
84, is ten years his senior and still
going strong as UIC's vice president
and secretary. ■

Fifteen tons — and here's what you get

W'hat this country needs, says
Irwin Barr, is a good 15-ton
tank. Barr is president of AAI
Corp., United Industrial's major
subsidiary. He holds well over 100
patents, some of them for armor-
piercing antitank ammunition,
and he has long been a bug on the
subject of light tanks. As a result,
AAI has built a number of proto-
types over the years, but so far
Barr's ideas have generated more
controversy than orders.

The reason is weight. The
Army's basic tank of the near fu-
ture, the Ml, rolls off General Dy-
namics' assembly line at about 60
tons — more if heavily equipped.
Most Soviet tanks are in the area of
45 tons. Those are naturally bulky,
cumbersome machines — and in
contrast, AAI's 15-ton RDF model
(for Rapid Deployment Force — re-
member?) can be carried to a battle
site by helicopter.

Listen to Barr make his case: "If
we needed to project force rapidly
someplace, such as the Mideast,
we could quickly transport only
140 or so Mis. You can fit two Mis
on a C5A transport plane, and the
U.S. has 70 or so C5As. You can't
transport Mis in a C141, our main
air transporter, of which we have
more than 300. But if we were us-
ing RDF light tanks, we could rap-
idly transport about 1,400 — 10
times as many — 8 each in our
C5As and 2 each in our C141s. The
RDF tank also fits into a C130."

Add to that the fact that light
tanks go for a base price of about $ 1
million (vs. around $2.7 million for
a conventional tank), and the case

AAI Corp. 's RDF light tank

begins to get intriguing. Light tank
proponents argue that with today's
armor-piercing shells almost no
tank is able to withstand a direct
hit. So what counts are numbers,
mobility, rapid automatic fire and
a low silhouette.

On the other hand, critics claim
that light tanks are vulnerable to
more weapons than heavy tanks.
Some shoulder-fired rockets, for
example, can destroy an RDF light
tank — unlikely with an Ml.

Barr hopes the Army will even-
tually order his RDF tank, but he
has a better chance with the Ma-
rines— or foreign governments. A
big sale to Venezuela was appar-
ently near, before the war over the
Falkland Islands. But now, politics
are such that Latin American offi-
cials don't want to be seen talking
with Yanqui suppliers. — f.D.

FORBES, OCTOBER 11, 1982

Amfac.

Aren't they in retail?
Or is it wholesale?

Our Retail Group owns and operates Liberty House department stores.
(In Hawaii, California and Nevada.) Our Distribution Group is one of the

nation's leading wholesalers of pharmaceuticals, electrical and
mechanical supplies. Both groups are successful, and should be. We've
been wholesalers and retailers for over a hundred years.
When the question is Amfac, the answer is yes.

(^frfac

Forbes 500. $2.1 billion revenues.
Diversified operations in 38 states.

GMC is
a division of
General
Motors.

GMC our aim, quite simply,
offer trucks that know how to
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's why, from one end of our
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can help you cut your oper-
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st consider a few of the things
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our Dragfoiler. We developed
i made it available on our
y-duty GMCs. It can help keep
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w for 1983 are features like the

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disc brakes, available on a wide
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Of course, there are lots of other
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TRUCKS ARE WHAT WE'RE ALL ABOUT

Tiny Logicon is growing as a defense con-
tractor by supplying the software that
makes the missiles hit the mark.

On target

By Michael Cieply

BLEAK AND FORBIDDING, high
above Los Angeles' fog-shroud-
ed San Pedro harbor, looms
Logicon Inc.'s labyrinthine office
complex. Files are secured with long
metal bars, and certain of the rooms
are ominously bolted. While the staff
is busy "sanitizing" an area for visi-
tors, John Woodhull, president
of the $62 million (revenues)
company, stares suspiciously
at the reporter's cassette re-
corder on his desk. "Okay,
where does this tape go?" he
asks sternly. "Let's just talk
about that for a minute."

A flair for cloak-and-dagger?
More like routine vigilance for
a defense electronics firm with
90% U.S. government book
ings. Logicon's bread and butte:
comes from products as peril-
ous as the MX inertial guidance
software and the programs that
target all the Minuteman and
Trident missiles and B-52
bombers — essentially the en-
tire U.S. strategic triad.

Important though it is to the
Pentagon's growing commit-
ment to defense electronics,
tiny Logicon seems an after-
thought among such traditional sup-
pliers of military wizardry as $5.2 bil-
lion (revenues) TRW, $5.6 billion
Raytheon, $1.9 billion Northrop and
$572 million E-Systems. But thanks
to Woodhull's agile maneuvering, Lo-
gicon is getting an increasing share.

Woodhull, 48, a mathematician
with degrees from the University of
Colorado, left TRW in 1 964 to join the
technical staff of Logicon, which had
been set up three years previously by
former TRW engineers. Like many
engineers, the founders were more in-

terested in doing "creative work"
than in building a business. Not
Woodhull. "Jack kept asking people,"
says a friend from those days, "why
bother with this if we can't build a
great big company and get rich?"

Taking over as president in 1969 —
with Logicon at $5 million rev-
enues— Woodhull focused the com-
pany on a painstaking technique

Logicon President John Woodhull
The Soviets know they will get hit.

called Independent Verification &
Validation. Spectacular failures in
early rocket launches — those fiery di-
sasters on the pad — were sometimes
traced to minuscule bugs in flight
control programs. Under IV&V, a gad-
fly like Logicon received as much as
20% of a development contract just to
point oiit where prime contractors
like IBM or Rockwell were wrong.

"We introduced an element of com-
petition," grins Woodhull, who re-
cently bought a one-man sailboat
with the intention of racing in the

1984 Olympics. IV&V gave Logicon
access to high-grade technology,
while building the credibility it need-
ed to win lucrative development con-
tracts of its own. Result: 1983 book-
ings— spread safely among the Air
Force and Navy, along with civil agen-
cies like the CIA and the FAA — are
projected at approximately $85 mil-
lion. By fiscal 1986 Woodhull expects
revenues to reach $150 million.

Not that Woodhull wasn't impa-
tient to have more. During the 1970s
he tried to drive growth with commer-
cial forays as far-flung as hospital man-
agement services and micrographic
terminals that were supposed to mar-
ket cosmetics for Revlon. Most fiz-
zled. According to Harold Newmark, a
Logicon veteran who was responsible
for marketing those flops. "We didn't
understand that what is cheap for the
military is out of sight for a hospital.
Sometimes we had solutions for
which there were no problems."

Chastened, Woodhull has been cut-
ting back the commercial ventures
since 1979. He sold a moneylosing
newspaper text-processing operation
this year, and is weighing the future of
Logicon's factory automation divi-
sion. But concentrating on the
military has its rewards: Logi-
con's revenues have doubled
since 1978, and earnings per
share are estimated at $1.65
for fiscal 1983 (ends Mar. 31),
up 34% from 1982 earnings,
which were penalized by a loss
from discontinued operations.
With $9.5 million in cash and
no debt, Woodhull is shopping
for a defense-oriented acquisi-
tion, perhaps with the elec-
tronics hardware capacity that
Wall Street seems to favor.

Defense electronics analyst
Phillip Brannon of Merrill
Lynch points out that Logi-
con's shares trade on the
American Stock Exchange for a
relatively modest 10 times
earnings, compared with P/Es
of 15 or more for electronic
warfare hardware producers
like Loral. But, says Brannon, "Current
multiples don't reflect the prospects."

Doesn't Woodhull fear the accumu-
lating pressures to curtail the growth
of defense budgets? "Not a bit," he
maintains. The way he sees it, Logi-
con's electronic innards — the guid-
ance and targeting software — are the
essentials of weaponry. "Some con-
gressmen might get wild ideas," says
he, in his best doomsday manner.
"But the Soviets have to know that
your system can hit them, otherwise
they'll clobber you." ■

144

FORBES, OCTOBER 11, 1982

How to fire
someone you like.

Some people need a drink to

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© 19H2 Robert Half International Inc. j

PICKING A PLANT
SITE IS EASIER,
WHEN YOU START WITH
MULTIPLE CHOKES.

PLANT SITES BY
THE THOUSANDS.

As the nation's longest railroad,
Burlington Northern can offer you
an outstanding variety of choice
locations across the country.

Properties are available
throughout the 25 states we
serve— both our own substantial
real estate holdings and those
of private developers with whom
we work closely.

Whether you're looking for a
rural or an urban location, we'll
help you find the ideal place for
your next pic have sites in

or near most ma markets from
Canada to the ( . i md from the
Pacific North wesi Alabama
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LOCATIONS ARE
MORE THAN LAND.

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ONE CALL WILL

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If you want to find out more, call
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wide variety of location choices tc
consider. And each comes with
America's longest railroad ready
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BURLINGTOh

NORTHERN

RAILROAD

Industrial Development Department
Room C1082
176 East Fifth Street
St. Paul, Minnesota 55101

Worried that your oil and gas tax shelter
isn't paying off? Wondering whether to try
one? Here an industry analyst sets forth
some performance yardsticks.

How does your
shelter shelter?

By Jean A. Briggs

Oil and gas tax shelter pro-
grams are not all created equal.
Some have returned as much as
110% aftertax to investors at the end
of their term. Others have returned
nothing at all. How do you tell which
will do well and which won't before
you plunk down your $10,000 and
become a limited partner?

Arthur Jerrold King, president and
founder of Investment Search, Inc. of
Annapolis, Md., has been working on
the problem. After graduating from
the University of Oklahoma, where
he studied accounting, he became a

salesman for one of the major oil and
gas program sponsors. One problem
he encountered was the dearth of good
information for investors. So he start-
ed up his own business providing
summaries of the prospectuses of
SEC-registered programs.

Soon King saw patterns in the offer-
ings. He concluded that there are four
basic types of programs. He has just
completed a study that analyzes the
impact on aftertax return of program
size, amount of front-end load and
type of drilling.

King's study covers 500 partner-
ships put together by 64 sponsors be-
fore 1981. All the sponsors were still

How is the deal structured?

in business and raised money in 1981.
But the money raised from the public
before 1981, some $2.5 billion, had
been put to work and uncovered ei-
ther gushers or dry holes. Although
the oil and gas in successful wells
may flow for another 20 years or
more, the ultimate return on the in-
vestor's dollar can at least be project-
ed. King's conclusion for the 500: a
disappointing average return of 9.9%,
down susbtantially from 12.8% two
years ago. King attributes this decline
to the many new and inexperienced
entrants in the business.

If the general partner and the limit-
ed partners shared both nondeduct-
ible capital costs and deductible drill-
ing costs, King found that the limited
partners' chances of a decent return
were best. He calls this a promoted
interest structure. Sixty-six of the 500
partnerships used it and raised $232.4
million. Twenty-four percent of these
will return over 20%; only 6.4% will
have no payout at all.

The reason the promoted interest
structure is the safest for investors is
that the general partner and the limit-
ed partners have the same interest.
Says King: "He is at risk when he
drills, just as you are."

The riskiest type of program to
limited partners turned out to be the
one King calls functional allocation In
such programs capital costs are paid
by the general partner. Intangible or
drilling or deductible costs are paid by

A new study of oil and gas tax shelters finds partner- enues, proved safest. Those with functional alloca-
ships with a promoted interest structure, where gen- tion, where deductible costs are paid by outsiders
eral and limited partners share all costs and rev- and capital costs by sponsors, proved riskiest.

Promoted interest
66 partnerships
$232.4 million raised
11.1% average rate of return

Carried interest
92 partnerships
$344.4 million raised
12.9% average rate of return

Reversionary interest
123 partnerships
$425.5 million raised
11.5% average rate of return

Functional allocation
219 partnerships
$1,462.8 million raised
8.7% average rate of return

FORBES, OCTOBER 1 1, 19h2

147

I,

NAR has one of the nation's
largest independent grey iron
foundries. More than half the
U.S. built cars have one or
more castings produced by
these modern, high quality,
high volume, cost efficient
plants.

NAR finds and develops oil
and gas in this continent.
For more than twenty years
we have developed our own
reserves and production from
prospects generated inter-
nally or within the industry.
Our professional staff directs
operations from strategically
located offices.

For the past five years our
growth has been financed
entirely by internally gener-
ated funds. We plan to con-
tinue this policy which has
given us steady and sub-
stantial growth and financial
strength.

NORTH
AMERICAN
ROYALTIES, INC.

CHATTANOOGA, TN 37402

the limited partners. Bceause inves-
tors can write off in the first year
everything they put in, functional al-
location is the most popular type of
program. "Investors like it but they
usually pay too much for it," says
King. Of the 500 partnerships, 219
were of this type. While 2 1.6% of them
can be expected to return over 20% to
investors, 35.1% will have no payout
at all. Even these figures may paint too
rosy a picture. Among those returning
over 20% arc two big sponsors, Dyco
and Woods Petroleum, which have
more liberal payout terms or stronger
financing. "If these two programs were
removed from the sample, the percent
which returned over 20% would de-
cline to 13%," says King.

In the other two program structures
King has defined, limited partners pay
essentially all of the costs. "The gen-
eral partner pays 1%," says King, "but
he gets that in a management fee. He
doesn't have to reach in his pocket for
any cash." In one he calls carried inter
est. the general partner shares in rev-
enues from the first barrel produced.
In the other, labeled reversionary inter
est, the sponsor doesn't begin to share
in revenues until after the investor
gets at least some money back.

Surprisingly, the carried interest
structure turned out to be more favor-
able for investors than the reversion-
ary interest structure. Of the 92 part-
nerships with a carried interest struc-
ture, 21.8% will return over 20%;
40% over 10%; 29.1% under 10% ,
and 8.6% nothing at all.

Of the 123 programs with a rever-
sionary interest structure, 18% will
return over 20%; 22.3% over 10%;
47.9% under 10% ; and 1 1.8% nothing
at all. Both these structures are used
primarily by new sponsors who don't
have much cash, says King. "The
problem with reversionary interest is
it gives them an incentive to charge
higher tees than they really should,
since they don't get a stream of in-
come as early as those with a carried
interest structure."

But how can you tell what kind of
structure the deal you are considering
has? It won't be labeled "functional
allocation" or "carried interest" in
the prospectus. Your broker might
know, but he might not. "The an-
swer," says King, "is to study careful-
ly two particular sections which are
in every prospectus. One is called
'Use of Proceeds,' the other, 'Alloca-
tion of Costs and Revenues.' These
will tell you who is paying for what
and who is getting what. Remember,
you want to be sure the sponsor's in-
terest is closely tied to your own, that
you are really in it together."

Tax shelter analyst King

"Study two sections carefully. . . ."

What do you look for beyond struc-
ture? One of the most important fac-
tors, says King, is the type of drill-
ing— was it exploratory, developmen-
tal or a combination of the two? He
found that in his sample investors
fared best in developmental programs
and worst in exploration programs.
That's because of the far heavier
downside risk for exploratory pro-
grams. Only 6.9% of the developmen-
tal partnerships will not pay out, as
opposed to 34.4% for those concen-
trating on exploration.

As for size, King maintains that
large amounts of money are not nec-
essarily good. "Companies that do
well with a few million can go back to
the market and raise larger sums.
They usually didn't do as well after
that." Partnerships that raise between
$5 million and $7 million showed the
best average rate of return; larger part-
nerships proved to be the riskiest —
with a 36.8% nonpayout ratio.

Front-end load turned out to be
more important than King had ex-
pected. Programs with a load of under
5% showed a projected 17.8% rate of
return, while those with a load of over
20% had an average of 9.1%.

Other factors important to inves-
tors' chances, says King, include the
sponsor's technical expertise, his
management ability and bis track rec-
ord. One of King's competitors, Rob-
ert A. Stanger in Fair Haven, N.J.,
recently ranked over 600 programs ac-
cording to past performance. He and
King' agree that sponsors who have
done well in the past tend to continue
to do well as long as they don't make
major changes in, for example, drill-
ing personnel or location.

The truth, of course, could be that
all this analysis is for nought — that
finding oil and gas is really just a
matter of luck. But to the extent that
experience and skill influence the
outcome, King's effort is a large step
toward creating a useful yardstick. ■

FORBES, OCTOBER 11, 19K2

The last thing you need
during a merger or tender offer
is to get tangled up in your depositary.

The key decisions have
been made. The exciting part
is over. Now somebody has to
handle the important part:
making it all work .

Usually, awarding a bank
the depositary function — the
administration and handling
of the physical exchange of
stock — turns out to be an after-
thought.

And done with little
thought, it can cause a dispro-
portionate amount of grief.
L lability. And irate stock-
holders.

All it takes is a small
clericalVslip-up with a small
stockholder.

A costly delay occurs. You
spend precious time preparing
lengthy explanations for the
press. Answering to your board
of directors. And fielding ques-
tions from regulatory bodies.

The risk is that the entire
deal will be jeopardized.

To avoid all that, we've
developed 80 well thought-out
questions that we ask you on
the front end.

Questions you probably
haven't even considered. But
they cover the potential hic-
cups, snags and fuzzy areas
that can turn a brilliant acquisi-
tion into a dismal administra-
tive mess.

The truth is, most people
in your organization don't even
know what a depositary does.

And if it's done well, they
still won't.

CONTINENTAL BANK

Continental Illinois National Bank and Trust Company of
Chicago, 231 South LaSalle Street, Chicago. Illinois (>069.i

Atlanta Chicago Cleveland Dallas Denver Detroit Houston Los Angeles Minneapolis New York San Francisco Seattle While Plains

Army, Air Force, Navy and Marines are
about to order a runabout to replace the
popular, old reliable jeep.

Learn to say
Hum-vee

By Allan Dodds Frank

The three contenders /< HMMWV (pronounced Hum-vee) contract, Teledyne's

entry (top), General Dynamics' (middle) and American Motors' (bottom)

A bigger, more mobile — - 'hat can carry five times the jeep's load.

T|he jeep, trusty workhorse of
the military for more than 40
years, will be retired. The jeep
still works fine, but it is no longer big
enough. Sophisticated new equip-
ment carried by soldiers is much
heavier than the weaponry it replaces.
All the electronic gear, especially
truck-mounted TOW missiles, also
require trucks with ignition systems
that produce no electronic interfer-
ence. To standardize equipment, the
Army, Navy, Air Force and Marines
have agreed to buy one vehicle.

The result: a competition to pro-
duce the HMMWV (pronounced
Hum-vee) — for High Mobility Multi-
purpose Wheeled Vehicle — which
will be diesel-powered, aluminum-
bodied and capable of carrying 2,500
pounds. The Humvee will accelerate
from 0 mph to 30 mph in eight sec-
onds, climb a 31 -degree slope, ford a
depth of 30 inches or 60 inches and
range 300 miles.

General Dynamics' Land Systems
division (formerly Chrysler Defense
Industries, Inc.), Teledyne Continen-
tal Motors' General Products division
and AM General Corp., a subsidiary of
American Motors, won development
contracts in 1981 worth up to $4 mil-
lion apiece to produce 1 1 prototypes
each — covering utility, weapons-car-
rier and ambulance Humvees.

The stakes are attractive: The U.S.
military's minimum order is for
53,000 Humvees in the next five
years — each expected to cost between
$25,000 and $30,000. That could
mean $300 million a year in assured
business. In addition, the military has
an option to buy another 53,000. Later
sales, plus purchases by foreign gov-
ernments, could push the program
over 200,000 vehicles, with produc-
tion lasting 20 years: a total of $6
billion worth of business.

The Army has been running field
tests on Humvee prototypes in Ari-
zona, Maryland and Michigan. Com-
petitors, though, have not been al-
lowed to watch the others' vehicles in
action, and they are all keeping mum
about their own entries. The Army
awards the contract in mid-December
or January.

So it will be farewell to the trusty,
popular jeep — introduced in 1941.
However, there is no need to mourn,
not even about the Humvee's
$10,000-per-vehicle higher price. For
the 66% higher price tag (jeeps sell for
about $15,000), the military will get a
more mobile machine that can carry
five times the load. That's not infla-
tion, that's efficiency. ■

FORBES, OCTOBER 11, 1982

Jack Hay is typical of Northern
Ireland's craftsmen: he concentrates
on thejob, making products and profits,
not news.

As an assembly foreman for Hughes
Tool Company in Belfast, Jack supervises
35 skilled machinists making cones for drill
bits. In off hours, he enjoys the province's
lush countryside. Some 28 years ago,
Hughes Tool Company was the first
United States company to establish a base
in Northern Ireland, where it has enjoyed
an enviable record of success. So much
so that Hughes recently announced a
further multimillion dollar investment in
Northern Ireland.

Calvin Sholtess, President of Hughes
Tool Division's worldwide operation, in-
cluding the Belfast operation, sums it up
this way: "Belfast was our first facility
outside the United States. Its history of
quality products produced by quality peo-
ple has resulted in an outstanding record
of export achievement. The operation is
managed and manned with Northern
Ireland people. Their success was a
major reason for our recent expansion
into the Monkstown facility."

If you have any doubts about how
smoothly business continues to function
today in Northern Ireland, ask anyone
who's been here recently. Better yet, come
see for yourself. For further information,
contact Ian Walters or George Forster at
the Industrial Development Board for
Northern Ireland, New York office,
150 E. 58th Street, New York, NY 10155.
Or call (212) 593-2258.

Northern
Ireland works.

A visit will convince you.

IDB

Northern
Ireland

The Ghawar. in Saudi Arabia, is
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Building on strength

Taxing Matters

Yon think companies will do anything to
lower their tax bill? Well, think again.

The tax shelter
nobody wants

By Laura Rohmann

W'ould you believe every cor-
poration in the country is ig-
noring a legitimate method
or sheltering income and boosting
:armngs? It's a legal and guaranteed-
:o-work tax scheme, promoted during
:he last few years by two Ivy League
professors, several investment advis-
ers and even Fortune magazine, in an
irticle entitled "How to Slash Your
Company's Tax Bill."

Here's how it would work. In step
me of the scheme, a company's pen-
sion fund sells all its stocks and uses
:he proceeds to buy bonds. Then the
:orporation itself does the reverse, is-
suing new bonds and using the pro-
:eeds to buy back the same portfolio
Df stock the pension fund sold.

Why bother? According to plan ar-
;hitects Fischer Black of MIT and for-
ner Harvard Professor Irwin Tepper,
»fou buy the bonds for the pension
und because that's where the pension
und shelter is most effective. All the
ncome from bonds is taxed as m-
:ome, whereas the appreciation on
:ommon stocks, is taxed at the lower
:apital gains rate. The corporation is-
sues new bonds and uses the proceeds
:o buy its pension fund's stock portfo-
lio or a mutual fund of similar make-
jp. Why issue bonds instead of new
:quity? Its tax bill would be lower
since interest payments are deduct-
ible and dividends are not. Even at an
interest level of 15% you wind up
saving money if your taxable dividend
payout ratio is above 8% (assuming a
corporate tax rate of 46%).

There's no legal problem. Bonds are
thought to make the pension fund
more secure, so ERISA presumably

won't come after you for that. And
don't worry about the fund's bonds
yielding less than the old stock portfo-
lio did. You have that same portfolio
contributing to the company coffers.
Besides, the more money you are re-
quired to contribute to the pension
fund, the more tax savings are created.
"You should want to put more money
into the fund when the actuary asks
you to," says Tepper, who currently
owns a pension consulting firm and is
a part-time lecturer at MIT.

So where does the plan fall apart?
When it enters the real world, says
Mario Leo, vice president of finance at
Towers, Perrin, Forstcr & Crosby.
What the plan creates is a more highly
leveraged, and so more risky, com-
pany because you can't really look at
the pension fund when evaluating the
company. "I don't believe the bankers
arc going to say, 'Well, you're not as
highly leveraged because we're going
to take into account your pension
fund assets,' " says Leo. "This idea
assumes a world in which the pension
fund is really an asset of the employer
from the banker's standpoint, and

that's not the case."

It's not the case from many corpo-
rate treasurers' standpoints, either.
Says Bennett Shaver, Goodyear Tire
& Rubber's assistant treasurer, who
presides over $1.4 billion of pension
assets: "Pension funds arc separate
entities, and you just have to deal
with them as separate entities." Al-
though Fortune estimated tax savings
of $21 million a year and stock appre-
ciation of 25% if Goodyear were to
adopt the plan 1 8 months ago, Shaver
says, "We don't have any interest at
all in distorting the investment pat-
tern of our pension fund."

Tepper agrees it's hard to swallow
at first. But he sticks to his point:
"The idea that you have to get com-
fortable with is that a pension fund
portfolio of a company, for all practi-
cal purposes, is really like any other
corporate asset, in the sense that, as
that fund docs better or worse, the
company's earnings and the share-
holders are better or worse off."

Interesting point. Unfortunately,
the employees who are counting on
the pension fund for monthly checks
after they retire may not view the
pension fund as just another corporate
asset. They may have the notion that
the fund belongs to them. Their
unions may have the same idea.

And although companies have been
known to play fast and loose with the
assets of their pension funds in the
past, they are clearly hesitant to do so
in any way that would require further
disclosure in their annual reports, as
this plan would.

So, every corporation in the country
is passing by this supposedly fool-
proof opportunity to save tax dollars.
"They're just not ready for the pen-
sion investment to be part of overall
corporate strategy," says Tepper.

Score one for the companies.

A retirement
ploy retired

It's a classic problem: The founders
of a family business decide it's
time to pass the company on to the
next generation. Yet they want to be
sure they will be able to pull a fair
amount of cash out of the company at
some point in the future. To mini-
mize the tax bite on that cash they
employ the "preferred stock bailout."
That is, they swap their common
stock in the business for preferred
stock. By doing that they freeze the
value of their estates, because the val-
ue of the preferred is determined by

FORBES, OCTOBER 11, 1982

161

How do you improve a perfect product?

GOOD HOUSEKEEPING IS A PUBUCA1 ION OF HEARST MAGAZINES A DIVISION OF THE HEARST CORPORATION © 1981 THE HEARST CORPORATIOI

_

Taxing Matters

its fixed interest rate, not the growth
prospects of the company. When they
want cash, they can sell some of their
stock and simply pay capital gains
tax on the proceeds, not a straight
income tax, as would be the case if
they took out that cash in the form
of dividends.

Now, with the 1982 Tax Act, that is
over. "With little fanfare or discussion
in either house, Congress has com-
pletely changed the rules here," says
Gilbert Bloom of Peat, Marwick. "Now
you practically have to die with the
preferred stock before you can reap the
capital gains advantage."

Let's take an example: John and
Mary Smith, founders and 75% share-
holders of the XYZ Corp., are neanng
retirement age. They want to leave
the company to their son without
paying ruinous estate taxes. So they
swap their 75% interest (say 75,000

"Congress has changed the
rules. Now you have to die
with the preferred shares
before you can reap the
capital gains advantage."

shares) in the company, now run by
their son, Jack, who has the remaining
25% interest, for preferred shares.
Jack now owns 100% of the company
and the value of John and Mary's es-
tate is fixed for estate purposes.

Then John and Mary wish to sell
some of their shares, say 10,000 (at
$10 per share). They pay a tax on that
of $20,000 (capital gains), instead of
the $50,000 (income) they would have
paid if they had taken that money out
through dividends.

Those were the good old days. Un-
der the new law, the preferred stock
John and Mary hold is now considered
tainted. That means if they sell some
of their preferred it will be taxed as
regular income. No more capital gains
advantage unless all the preferred is
sold at once. This transaction is seen
by the IRS to be passing the benefits
to identical economic units. Transla-
tion: shifting money around in a fam-
ily to avoid taxes.

Years ago, the old preferred stock
bailout was considered reasonable by
Congress. It was seen as an incentive
for people to work hard and build up a
business. "It used to be thought of as a
mom-and-apple-pie situation," says
Bloom. But when the government
needs cash, mom and apple pie are
expendable. — Theodore Lowen

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FORBES, OCTOBER 11, 1982

163

Tom Bailey's hard-won investment strategy
has put Janus Fund on top. The question
now: Cayi it stay there?

Rocky Mountain
high

By Carol E. Curtis

T|om Bailey, president and direc-
tor of the Denver-based Janus
Fund, has the kind of easygoing,
personable manner you might expect
from a ski instructor or camp counsel-
or. His broad, crinkly-faced smile is
earnestly reassuring. As he slides his
lanky form into an armchair, you
want to lean back, too.

This relaxed manner is deceiving.
Bailey, 45, manages one of the hottest
mutual funds around. Over the past
12 years his $59 million Janus Fund
has posted an average annual total
return of 18.4%. It has done
well in both up and down mar-
kets— and holds the honor of be-
ing the top-ranked no-load fund
in Forbes' annual mutual fund
survey.

Despite his laid-back appear-
ance, Bailey — who makes all Ja-
nus Fund investment decisions
himself — came by his expertise
the hard way. After receiving an
M.B.A. from the University of
Western Ontario in 1962, he did
odd jobs in Aspen to be near the
ski slopes. When his money ran
out, he went to work for
Boettcher & Co., a Denver-
based brokerage firm. Soon Bai-
ley was off, unhappily, to Man-
hattan. "When I went to New
York from Denver, my ski
friends thought it was Siberia,"
he explains.

Confined to a office high in

the Chase Ma. "adding, Bailey

itched for Weste indepen-
dence. So he roun ; six friends —
including his mod each had

$25,000 to spare, set up a

$ 1 50,000 fund. Boetu allow
him to make trades, so i egular-

ly excused himself to men's

room and called his own broker from
a pay phone downstairs.

That was 1968, and the finagling
paid off. Inside of a year, Bailey had a
nice profit to show on the $150,000.
"In that market," Bailey says, "al-
most anything you did was right. But I
had no clue then that this game is
tougher than it looks."

Bailey soon caught the eye of Joe
Kelly, a Denver-based money man-
ager who had his own sales force. He
invited Bailey to market his stock
fund through Kelly's management
company. The chance to go west
again was irresistible, and Bailey set

Tom Bailey of Janus Fund
Knowing when to sell.

up shop in Denver in 1969 with
$650,000. By the time Janus Fund was
operating, however, it was 1970 — and
Wall Street was on the skids.

Bailey's partner soon went his own
way, leaving Janus Fund with little
but its name and a pile of bills. To
survive in those early years, Bailey
dropped the fund's sales charge and
slashed overhead, operating out of a

The Funds

small room with two telephones for
$100 a month. He then started to
build a new client list.

Bailey knew that if he could per-
form for his clients during those lean
years, he could win loyalty. So he
formulated a strategy that he still
uses: Bailey keeps an unusually high
cash position — sometimes 40% in a
bull market and 80% when stocks
are falling. With his remaining as-
sets, Bailey goes for industries he
feels will react favorably to the cur-
rent political and economic climate.
Years ago, for example, he was into
energy and technology.

Now he likes defense stocks. When
the big rise in military spending be-
came clear in 1980, Bailey loaded up
on companies like Lockheed — his sin-
gle biggest equity holding — as well as
Hazeltine and Whitehall.

Bailey's other current favorites are
companies selling low-ticket con-
sumer items. He holds large positions
in, for example, Denny's, House of
Fabrics and McDonald's.

Bailey's real success, however,
comes not from buying but selling.
"He is incredibly undogmatic," says
Gordon Yale, Janus Fund's secretary-
treasurer, "and absolutely shameless
about changing his mind." That
means as soon as Bailey senses weak-
ness, he's gone. Unlike many
money managers who stuck
with energy stocks when oil
prices began to collapse, for ex-
ample, Bailey had sold all of his
energy holdings by early 1981.

He has just done the same
with his technology stocks-
companies like MCI Communi-
cations, Telex and Xidex. "At
the start of a new [up] cycle, the
names you make money with
are usually new ideas," Bailey
explains.

This flexible, fast-reacting ap-
proach has more than accom-
plished Bailey's goal of building
a client list. But the real ques-
tion is how long he can keep up
the good work. The history of
' mutual funds is littered with
the bodies of hotshot money
managers whose strategies turned
sour. And at the moment new money
is pouring into Janus. The fund took
in $16 million — 27% of its assets — in
the six weeks since it hit the Forbes
mutual fund honor roll (Forbes, Aug.
30). "How big is too big?" asks Bailey.
"I don't really know." If Janus keeps
growing at its current rate, he may
soon find out. ■

FORBES, OCTOBER 11, 1982

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§i Chicago Board of Trade

Primark has been taking the heat for high
natural gas prices in Detroit, but Bob Stew-
art would rather blame his former boss.

Who's at
fault here?

By Carol E. Curtis

Robert Stewart, the new chief
executive of Primark Corp.,
parent of Detroit's only natu-
ral gas utility, still has an office down
the hall from Arthur Seder Jr., his old
boss at American Natural Resources
Co. That's because, until last year,
Primark was a unit of ANR, which
owns the nation's seventh-largest
pipeline company — and Stewart still
hasn't had time to move out.

ANR spun off Primark to promote
faster growth. Considering Pnmark's
problems, that was probably wise. But
what ANR may not have bargained
for was the tough new stance its for-
mer subsidiary now is taking —
against ANR.

Stewart, 58, and a Harvard MB. A.,
has just withdrawn from the Ameri-
can Gas Association, the main indus-

try trade group, because he feels that
pipelines like ANR's have too much
influence. He is also leading a vigor-
ous attack against pipeline pricing
policies. "They are protected from the
marketplace," he says. "That's why
our gas prices are so high today."

Since 1975 the price that Pnmark's
Michigan Consolidated subsidiary
pays for its gas has gone up 375%.
About 1 70% of the increase has come
since 1978, when Congress passed the
Natural Gas Policy Act. Primark's gas
now sells for an average of $4.50 per
thousand cubic feet, 50 cents more
than the equivalent price of a barrel of
industrial fuel oil.

In depressed Detroit, that has be-
come a fighting issue. To protest the
soaring costs, the Michigan Citizens
Lobby has put a proposition on the
Nov. 2 ballot that would disallow the
automatic passthrough of higher gas

Robo t Stewart, chief executive of Primark

Consumer anger should be directed at pipelines, not utilities.

costs by the state's utilities. It is one
of the first such propositions to make
it to a ma|or referendum, and it is
ominous for Primark. If it passes,
which some see as likely, it will be
much more difficult for Primark to
recover its raw fuel costs.

Stewart, however, believes that
consumers should direct their anger
at the pipelines. After all, he points
out, they contracted for the gas to
begin with. "The producer is going'to
get what he can," Stewart says. "It is
the pipeline that agreed to pay the
price."

Primark's chairman blames high
gas prices on so-called "take-or-pay"
contracts, which many pipelines
signed when gas supplies were tight.
Under these agreements, the compa-
nies must accept a fixed amount of
gas at the maximum price allowed by
federal law. But with the market glut-
ted with gas, such inflexible contracts
are a bonanza for producers. "Pipe-
lines have more gas than they can
handle, and still prices keep going
up," Stewart complains.

Stewart wants Congress to modify
the "take-or-pay" provision, a posi-
tion he is pushing as a leader of a
Washington lobbying group, United
Distribution Cos. That would stop
Primark from having to pay for gas it
can't sell. "Pipelines must assume the
risk for their actions," he says. "I
don't mind being the villain if that's
what it takes."

The referendum comes on top of
another growing concern: bad debt.
The utility estimates customers who
won't — or can't — pay account for
2.5% of revenues, up from the indus-
try average of under 2%. "It is partly
the nature of our service area," says a
spokesman, pointing out that Detroit
is plagued with 15% unemployment.

Despite all this, Stewart's nine-
month-old company is actually show-
ing income gains, thanks in part to last
year's cold winter. Primark's earnings
should be up 27%, to $24 million, on
revenues of $1.8 billion. As Ron Cas-
sinari, analyst at E.F. Hutton, points
out, that will bring Primark's return
on equity up to 7.4% from 1 98 1 's
5.4%.. But compare that with other
major utilities in the state that return
about 11%. So, it will take more than
another subzero winter to solve the
company's current problems. Ulti-
mately, the best way to get gas prices
down is to let the free market work —
and that isn't likely to happen until
1985, when the Natural Gas Policy
Act expires. Meanwhile, at least, the
feuding among Primark, ANR and
consumers will generate heat in De-
troit over the coming months. ■

166

FORBES. OCTOBER 11, 1982

Jed Taylor

your dragline's ready"

Now the manager of the
Morrison-Knudsen-operated
Sarpy Creek, Montana, coal
mine can double production.
No wonder he's smiling.

Jed Taylor s new dragline is one
of the West's largest, a 6,000-ton
Bucyrus-Erie Model 2570, and
assembling it was a challenge, to say
the least.

The M-K crew that did it used
550-tons of crane capacity; burned
up 70-tons of welding rod and wire;
X-rayed, stress-relieved and sonic-
tested 74 mast and boom joints; and
survived 31 weeks of snow, wind and
sub-zero weather.

It was no picnic, but it more than
doubled the capacity of one of the
most efficient mines in the world, a
mine designed, engineered, con-
structed and operated by one of the
most experienced and capable out-
fits in the world, Morrison-Knudsen.

When it comes to mining, M-K can
do it all — feasibility studies, permits,
EIS's, mine plans, design, engineer-
ing, construction, training and oper-

ating, and that's about what M-K did
at Sarpy Creek.

M-K people not only designed and
built the mine; they also designed
and built the mine's water tankers,
coal haulers and 37-mile spur line.
They implemented an extensive
reclamation program that uses 17
different grasses, bushes and trees.
And they provided opportunities for
the Crow Indians who make up more
than half the mine's work force, and
whose tribe has leased the tract's
mineral rights.

The result? In five years, the mine
has yet to miss a shipment, and it's
never been weathered out. When a
"Hundred Year Storm' closed every

other Montana mine in 1978, Sarpy
Creek didn't miss a beat.

"We got damn wet, though',' recalls
Taylor, a third generation coal miner
from Kentucky who knows about all
there is to know about running a
strip mine.

Taylor's experience and M-K's
technology make Sarpy Creek hum
You can feel the rhythm. Everything
moves in synch all the time, precisely
according to a long-range plan.
That's why quotas are always met.

"A genius engineered this mine'.'
says Taylor. "Of course'.' he adds with
a wink, "it also takes a genius to
manage it'.'

If you've any sort of a project
on your drawing board, our ..
"geniuses" can probably con- u -
tribute to its productivity Let's
talk about it. Call our CEO, Bill
McMurren, at (208) 386-6700,
and he'll get the right M-K peo-
ple to your office PDQ.

They'll tell you what M-K can
do for you, and they'll take no j
more than one half hour

MORRISON-KNUDSEN COMPANY, INC.

Boise, Idaho 83729

Engineers. Builders Developers. Managers. Equal Opportunity Employers.

John Tishman, the builders builder, is tired
of simply earning fees. Now he also wants
a piece of the action.

Family
velopments

By Howard Rudnitsky

Joint Tishman of Tishman Realty & Construction Co.
A building for you, a shelter for him.

Iook up when you are around any
_ big commercial construction
I job and you are likely to see the
name Tishman. Over the years, Tish-
man Realty & Construction Co., Inc.
has managed such massive projects as
New York's World Trade Center, De-
troit's Renaissance Center, the John
Hancock Building in Chicago and
Newark International Airport. And
last month Tishman finished the first
phase of Walt Disney's $800 million
Epcot Center in Orlando.

Having your name on the I-beam,
however, is a far cry from owning a
property. Tishman Realty gets a mod-
est 2'/2% to 4% of total cost as con-
struction manager. As a "builder's
builder" the firm bears no investment
risk — although it may sully its top-
drawer reputation if it does a poor
project-management job.

Until the early Seventies, however,
things were different at Tishman. The
company was more than just a con-
struction manager at projects such as
666 Fifth Avenue in New York, Gate-
way Center in Chicago and 525 Mar-
ket Street in San Francisco. Tishman
was also the developer — and often the
Tishman name stayed on the build-
ings after the scaffolding came down.

In those days Tishman was publicly
owned with 3,000 shareholders — in-
cluding several Tishmans. But Tish-
man ran afoul of the overbuilt New
York market in the mid-Seventies
with a well-known white elephant at
1166 Avenue of the Americas. That
building produced $30 million in
losses and highlighted two crucial ac-
counting problems for the company:
As a public corporation, Tisbman
couldn't use tax shelters available to
private developers. Even worse, Se-
curities & Exchange Commission ac-
counting rules required the company
to report a negative net worth.

"That meant we couldn't even pay
a dividend," explains CEO John Tish-
man, 56, the most technically orient-
ed of the Tishman clan. "It was terri-
ble for our stock price, which fell to
11. Yet cash flow was $14 million a
year. If you capitalized that, we were
worth $120 million by real estate
valuation standards — about $30 a
share."

Looking at those numbers, Tish-
man's directors — a number of whom
were family members — voted to liqui-
date the company and its 24 proper-
ties. That brought in about $30 a
share, and the Tishman clan split into
three camps. Though competitive and
occasionally quarrelsome, all the fac-
tions kept their offices in Manhat-

168

FORBES, OCTOBER 11, 1982

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tan's 666 Fifth Avenue.

John's older brother Alan, 64, knew
how to manage office buildings, so he
continued to operate a management
and leasing business. In addition, he
develops new office buildings — in-
cluding Gateway IV, a 1 milhon-
squarc-foot Chicago property, where
his partner is Equitable Life.

Guess who is constructing Gate-
way IV? John Tishman. Moreover,
cousin Robert, 52, formed a real estate
development company with his son-
in-law, called Iishman-Speyer. He is
currently developing the 1 million-
square-foot Continental Illinois Plaza
in Manhattan. Once again, fohn is
doing the construction.

While brother Alan and cousin Rob-
ert were building equity and utilizing
tax shelters, John sold the Tishman's
construction and research operations
to Rockefeller Center Inc. for $7.5

million in 1976. He ran the business,
earning fat fees for RCI, with pretax
margins that hit 30%.

Nice margins in anybody's book.
But Tishman figured he could gener-
ate a lot more volume, and he also
wanted the company to own proper-
ties as well as merely build. He had
asked Rockefeller for permission, but
his new owners politely said no. Oth-
er members of the Tishman clan ob-
jected, too, claiming they had a formal
"no compete" agreement with John
that doesn't expire until 1983.

But John Tishman wasn't deterred.
He and his associates bought back
Tishman Realty & Construction from
RCI early in 1980 for $6.5 million.

Now, Tishman has three times as
much business (some $700 million in
annual revenues), using the firm's
strong engineering skills. However,
he is now starting to build for his own

account with an $80 million plan for a
Hilton hotel at the Epcot Center in
Florida. What took John so long? Part
of it was the agreement with his fam-
ily. Tishman also discovered he
lacked a team to develop financing,
and that accumulating large parcels of
land — as he is for a fine arts complex
in Dallas — takes time and money.
Tishman is only now beginning what
he hopes will be a $500 million
mixed-use project in Dallas.

To be project manager and develop-
er, Tishman must walk a thin line. He
insists he won't compete with clients
in metro markets like New York, Chi-
cago and Los Angeles. After all, he
explains, his projects are only a side-
line— just looking for a tax shelter.

But when you invest in real estate,
it's always a big gamble. You may buy
tax benefits, but you also can buy
some even bigger headaches. ■

Frank Carney? made a fortune building the
world's biggest pizza chain. He's doing it
again with Mexican food. What next?

Pizza to tacos
to pasta

By John A. Byrne

BEFORE HEAPING HOT SAUCE Over
his taco salad, Frank Carney
plows a tortilla chip deep into
some gooey chili con queso at the
local Chi-Chi's franchise in Wichita.
The boyish-looking 44-year-old, who,
for better or for worse, introduced spe-
cialty pizza to the Midwest in the
1960s and 1970s, is on his favorite
topic: fast food.

"Today most of the money in food
service is going to be made from the
post-World War II babies in the 22-to-
40-year age group," he says, munch-
ing away. "When those people were
14-to-20 years, they ate at McDon-
ald's and Burger King. Now they want
a drink with their meal, want service,
a nice atmosphere, moderate prices
and usually ethnic food. They are
tired of meat and potatoes."

On the other hand, the current
craze for mixing pizza, his past forte,
with Pac-Man and puppets is just a
passing fad, he says. He gives it five to
seven years. "I wouldn't want to have
any land and buildings with my name
on them in that business. They're go-
ing to get tremendous competition in
games because anybody can do it. And
the food is only an also-ran."

Carney can speak with authority. In
1958, as a University of Wichita fresh-
man working his way through school,
he founded Pizza Hut with his older
brother, Dan. The Carneys opened the
business in a tiny brick building off
Highway 54 in Wichita. It was oppo-
site the family's grocery store, where
Frank had been making $16 a week.
By 1977, nearly 20 years later, it had
become the world's largest pizza
chain, with some 3,100 outlets. It was
then that Carney sold it to PepsiCo,

Inc. for $300 million in a stock swap.
When Carney joined Pepsi's board lat-
er that year, he personally had close to
$16 million of Pepsi stock.

He remembers the early mistakes.
An effort to expand in Oklahoma City
in 1960 failed because the chain didn't
have a standard decor or style, and he
had put the restaurants in "old, crud-
dy buildings." When he moved his
pizza east to New York in the late
1960s, it was a disaster. Easterners
didn't like his thin, crispy pizza. They
preferred a pizza they could fold. He
learned the hard way that Pizza Hut
would have to cater to regional tastes.

A major crisis occurred in 1969
after Carney went public. In order to
gain a larger operating base, he bought
out 40% of Pizza Hut's franchisees in
a reorganization that increased com-
pany-owned stores from just a dozen
to 129, with 50 more under construc-
tion. Sales and profits began to drop as
managers with no stake in the busi-
ness replaced the former owners.
Then, somewhat belatedly, he in-
stalled a financial control system to
check overhead, sales and earnings on
a weekly basis for each store. "All of a
sudden, they knew somebody was
watching," says Carney. "Six weeks
later, our controllable costs dropped
eight points and our profit was back."

Flush with success, Carney persuad-
ed PepsiCo to acquire $104 million
(sales) Taco Bell, the nation's largest
Mexican fast-food chain, in 1978, only
a year after the Pizza Hut acquisition.
While Carney was preoccupied with
Taco Bell, however, a new crop of
regional pizza houses started eating
away at Pizza Hut's market share.
Carney tried adding sandwiches.

172

FORBES, OCTOBER 11, 1982

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THE LHVE

They didn't make it past the testing
stage. Then he tried adding taeo pizza. I
That enjoyed only a short-lived suc-
eess and was shelved. Then, two years
later, he finally managed to turn Pizza
Hut around with the introduetion of j
thick, Chicago-style pan pizza, which
now accounts for 55% of Pizza Hut's
sales. Despite the turnaround, Pepsi
management hrought in Donald
Smith from Burger King to head the
food division, and Carney resigned.

"I needed to cut the cord," says
Carney. "The hardest part was telling
the employees. They were shocked. I
had a lot of heart out there, a lot of my
soul." So Carney gave up his
$150,000-a-year job at PepsiCo in
1980, after generating $1 billion in
sales for its food service division. "I
knew that I could make more money
outside than inside, anyway," he says.
"If I stayed, I would have been making
$250,000 to $300,000 a year at Pepsi.

"I could have cashed in my
chips, put them in a money
market fund and just sat
back. But when you stop
growing you start dying."

But that's peanuts compared to what
you can do as an entrepreneur in the
food service business." Not that Car-
ney was about to go on welfare. His
Pepsi stock alone was still worth
about $15 million. "I could have
cashed in my chips, put them in a
money market fund and never lifted a
finger," says Carney, "but I would
probably die inside, because when
you stop growing as an individual you
start dying."

So he applied for a franchise with
Chi-Chi's, Inc., a Louisville, Ky.-
based chain of full-service, family res-
taurants that serve Sonoran-style
Mexican food with Margaritas and
Mexican beers. Chi-Chi's manage-
ment was astounded that he was in-
terested. The three:year-old company
didn't want to have to worry about
some hotshot from the pizza business
eventually trying to take them over.

But Carney was convincing. "I said
to them that the people who made the
most money from Pizza Hut were the
franchisees who sold their stores to
us, left and got more territory, built
up another group of stores, sold them
again and got still more territory to do
it again," says Carney. "I said I want
to be one of those guys. And I told
them that if, in the process, you want
to acquire whatever it is I'm doing,
it's for sale anytime."

Along with several other investors,

FORBES, OCTOBER 11, 1982

Oft ■ a

'H E

B '

mm

i

CE
CT

..v,\y#

I'' 3"' r

r

BECAUSE OF
MEN LIKE EDGAR ALLAN POE.

"ANOTHER OF THESE MAGI CONSTRUCTED.. .A
CREATURE THAT PUT TO SHAME EVEN THE GENIUS
OF HIM WHO MADE IT; FOR SO GREAT WERE ITS
REASONING POWERS THAT, IN A SECOND, IT
PERFORMED CALCULATIONS OF SO VAST AN
EXTENT THAT THEY WOULD HAVE REQUIRED THE
LABOR OF FIFTY THOUSAND FLESHLY MEN FOR
A YEAR "

-THE THOUSAND-AND-SECOND TALE
OF SCHEHERAZADE, 1845

OMNI Magazine recognizes that science is not just
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Which is why OMNI feels that science fiction is as
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THE ORIGINAL

Super 80 soars to new heights
when compared with the 737
in new passenger survey.

Knowledgeable flyers choose Super 80
twin-jet eight-to-one over competition.

The McDonnell Douglas Super 80 abso-
lutely flew away from the two-engine 737 when
passengers on the two planes were asked to
pick a favorite.

In responses from more than 1,800
passengers, the Super 80 was rated "very
appealing" more than twice as often as the
737. Knowledgeable flyers expressing
preference—passengers who know what
makes their trips more pleasant— picked
the Super 80 over the 737 nearly eight
times out oi m-w.

The survey was conducted on board
737s and Super 80s flown by the same airline,
comparing the same routes, the same days of

the week, the same fares and even the same
interior color scheme. The new Super 80 was
a decisive choice— a winner on every point
of passenger comparison. It was chosen for
cabin quiet; quality of ride; leg, arm and
shoulder room; carry-on luggage facilities;
and seat-to-aisle access.

The Super 80 was a three-to-one choice
of passengers surveyed in an earlier compar
son with 727 tri-jets.

For more details of these surveys, write:
Travel Industry Affairs, McDonnell Douglas,
3855 Lakewood Blvd., Long Beach, CA 90841
And for greater comfort when you fly— wider
seats and aisle and an exceptionally quiet
ride— choose the Super 80. The one most
passengers prefer.

/

Survey data collected and processed
by independent researchers.

Carney got the mid-Atlantic franchise
from Chi-Chi's in 1980. All told, it
costs about $1.7 million to open a
single Chi-Chi's restaurant. That's
about what it costs to open seven Piz-
za Huts. But the standard 2,500-
square-foot Pizza Hut racks up sales
of only $300,000 a year, compared
with the average $3 million for each
10,000-square-foot Carney-owned
Chi-Chi's — nearly 10 times the profit
for only 7 times the cost.

Even Pizza Time Theatre, Inc., the
pioneer in the pizza and puppets
game, can't match that performance.
It costs roughly $ 1 .6 million to open a
Pizza Time outlet with entertaining
robots and video games. Yet the units
average only about $1.2 million in
revenues a year. That's less than half
the Chi-Chi's $2.5 million average
and nearly a third of the $3 million
that Carney units take in.

In just two years, Carney's fran-
chise has gone from nothing to $26
million in sales, with eight restau-
rants and three more under construc-
tion. You guessed it. Chi-Chi's is
buying Carney and his partners out.
The deal will provide Carney with
396,000 Chi-Chi's shares, worth
about $7.8 million, plus a spot on the
company's board. Carney's cash in-

vestment? A mere $650,000 in 1980.

"It looks real easy," says Carney,
"but there was a lot of risk. I had my
name on $10 million in notes. So it
was just a proper reward for the risk."

Not all of his investments have
turned out so well. In 1980 he bought
into a Volvo and Datsun dealership in
Kansas City. They haven't turned a
profit for two years.

The jury is still out on some of his
other investments: a 14% stake in
Classic Corp. of Maryland, a $12 mil-
lion (sales) waterbed company; a 14%
stake in Scandia Down Corp., a chain
of retail shops selling high-priced
comforters; a 45% stake in Carbo Co.,
which leases TVs and stereos through
six stores in the Southeast. He's on
the board of each of these companies.

Carney is also a professional sports
car racer on the national circuit. His
2.5 liter Datsun 280ZX makes it to
about 1 5 rallies a year. Last year he was
ranked sixth in the International Mo-
tor Sports Association. He has totaled
his Datsun on eight separate occasions
and walked away unscathed each
time. "I spent my first seven years
cracking up," he laughs. "I'll never be a
great driver, but I'll have a hell of a lot
of fun because the thrill is in the com-
petition." But Carney's heart is in the

food business. He hopes to. buy into
another Chi-Chi's franchise, build it
up and sell it back. He's also backing a
new concept that fits into his ethnic-
food-for-famihes theory called Pastifi-
cio (the Italian word for pasta factory),
which will specialize in Northern Ital-
ian cuisine. The gimmick: Each outlet
will make its own pasta within view of
the customers. The first test unit will
open in Kansas City in November.
Carney figures it will cost $450,000 to
open and gross about $650,000 a year
in revenues.

What next? "As the population con-
tinues to age over the next 15 years,"
says Carney, "quality cafeterias
should make a comeback. Where else
can you go for reasonably mild food at
competitive prices?"

But don't think that Carney has giv-
en up on Pizza Hut pizza. He took his
wife and family there for dinner just
the other week. "That's one thing I
learned at Pepsi," he says. "They real-
ly believe that if this is what you do,
then that better be what you are. I
drink Pepsi. I eat Fritos. I am so loyal I
buy Wilson Sporting equipment. Any-
body who brings a Coke into our
house is persona non grata." No won-
der Carney spends lots of time in the
local Chi-Chi's franchise. ■

Brctnk Camey, cofounder of Pizza I hit

"I'll never be a great driver, but I'll have a lot of fun because the thrill is in the competition.

FORBES, OCTOBER 11, 1982

177

Forbes
focus on
Barbados

Building on a Strong Base

Rising above a troubled Caribbean Sea, Barbados has
created a strong base on which to build its future.
The phones work, the roads work, the people work.
The island nation has its act together. . .and it may
be the class act of the Caribbean.

Dominican Republic

Jamaica

When Air Force One touched down on the runway
at Grantley Adams International Airport April 8, 1982
bringing President Ronald Reagan, his wife Nancy and
some 300 staff, security and press to Barbados for a
"working vacation," it put into an airport whose
crowd-filled, glass and stone terminals belie their calm
Caribbean setting. The IL-mile drive from airport to
capital took some of the group over a smooth asphalt
highway that cuts through cane fields past hotels and
guest houses. In minutes they plunged into mid-
Bridgetown — port, commercial center and base for
banks, insurance companies, embassies and other
agencies that serve the Eastern Caribbean.

It's not by chance that Barbados projects an air
of business and a reputation for reliability throughout
the Caribbean. Prime Minister Tom Adams and his

Designed and written by Mary Patterson Ramond

A Furcu/P amend Product

Puerto Rico

d Antigua

\ \Guadeloupe

Martinique

St Lucia

0

Tobagc

Trinidad /

\ BA Forbes Special Advertising Section

arbados Labour Party, just as the opposition party
jfore, have created a strong base on which this
16-square-mile country of 250,500 people can build a
cure future. Barbados's traditions of political stability,
?mocratic government and private enterprise help.

". . .Democratic systems and democratic principles
e established so clearly in this country that continuity
f government policies) is not really in doubt. ''

Branford Taitt, an Opposition political leader

Settled by Britain in 1627, Barbados remained
"itish until its independence in 1966. Its Parliament,
\e of the three oldest of Western democracies, was
■st elected in 1639. From an agricultural economy,
ised mainly on sugar, and the occasional tourist,
irbados has diversified the sources of its income since
e 1950's to tourism, light manufacturing and, more
cently, to financial and business services. Today sugar
:counts for only 4% of the gross domestic product
hile manufacturing, tourism and the service industries
ch adds between 11% and 12%.

If Barbados were looked at as a business, it would
in high marks for sound, far-sighted management,
overnment has drawn up and followed development
ans, set national goals, invested capital to develop
id exploit its resources. In short, it has built and
aintains a modern, functioning nation.

"Barbados doesn't have great land mass or reserves
natural resources. Our strength lies in our people. "
Rawle Chase, General Manager,
Industrial Development Corporation

irbados has created a first-class transportation
twork. In the last decade government has rebuilt
international airport, its deepwater harbor and
>ntainer port. It is spending $9 million on roads to
lieve Bridgetown's modern, ulcer-making traffic jams
id to open land in the interior to industry.

Telephone, telegraph and telex services operate
lickly, smoothly. Direct dial to North America, the
K. and other international points can be as effortless
dialing Chicago from New York. Unflappable Bajans
) longer notice the West Indian businessman who flies
. spends his day putting through overseas calls, then
s back down island that evening because his own
tones don't work.

Barbados Light & Power plans to allocate $65 million,
th help from the World Bank, toward ending outages

and increasing its generation and distribution.

Unlike many of its neighbors, Barbados produces
oil, nearly one-third its needs, and natural gas. But the
country is seeking alternate sources of energy and is
experimenting with wind, solar and wave energy.

Barbados has built a school system, both public
and private, primary and secondary, unmatched in the
Caribbean. Technical schools, a community college and
a branch of the University of the West Indies offer
advanced training. Moreover, government is currently
investing $15 million in new buildings and teacher and
management training. The Barbados government clearly
sees the nation's greatest resource as its people and
intends to develop and build on that strength.

Doing Business in Barbados: One Manager's View

"We have our problems but generally, the people make
it enjoyable. . . make it possible to do business here."

Gerry Swisher, Corcom plant manager

In 1978 Corcom, an Illinois electronics
manufacturer, opened Corcom West Indies Ltd. in
Barbados to make electronic coils and filters for
shipping back to the U.S. With its payroll of 420,
Corcom W.I. ranks second among Barbados's foreign-
owned electronics manufacturers.

Why Barbados? What brought the Illinois
company, that had one profitable subsidiary in Mexico,
to Barbados? Corcom W.I.'s plant manager American
Gerry Swisher doesn't waffle: low labor costs and
generous tax concessions.

When Corcom's management decided on a second
offshore location, a search team began to look at
countries in the Caribbean and in Latin America.
Narrowing the choice to Mexico versus Barbados, the
team turned to Swisher to do a financial analysis.
He found that Barbados's low labor costs more than
offset projected transportation prices. The risks, Swisher
recalls, lay in not knowing local levels of productivity
and possible problems in shipping. The labor cost
differential won. He proposed Barbados and in
September 1978 opened the new plant. He's run it since.

With four years to look back on, Swisher today is
a persuasive booster of doing business in Barbados:
• "The people are smart. They tend to pick up ideas
and expand on them. Our management staff is
strong. . Everyone from our organization in the
States comments that the staff is professional. They
have well laid out plans, have systems in place. . ."

"We have 420 employees here and all but two are
Barbadian. Long term, we'd like to have a Barbadian
run the facility. . .We're at a point where we can talk
about that . . . We have to commit to a program to
make that happen. . .Our people get around. Our
managers take AMA courses in the States or else-
where. For instance, one of my personnel people is
taking a special labor course in England. Their labor
laws are more relevant to personnel here than ours."

'We don't have turnover problems. So far this year
our figure is 2.2% among operators. That's good.
Attendance for the year is about 95% . Those numbers
are favorable. They're competitive with the States.
Productivity is very good. We've spent time and
money training but after that productivity is high.

'There's a lot of union activity now from sources
different than in the past. Many people, including

ourselves, are concerned. There're new people and
new unions on the scene. . .We'll see. Traditionally,
Barbados has had well-organized unions with
basically responsible leadership. They haven't been
that hard to deal with."

'Living here varies. Quite honestly, some people havt
problems. A woman coming here with her husband
can't work. But there're a thousand activities she car
get involved in . . . Some people adapt beautifully. Wi
get off the island from time to time. We've travelled
to most of the other islands. Each is so different.
Barbados is much more advanced than other coun-
tries as far as its education, its infrastructure,
its transportation.

The people are friendly. They're genuinely nice
people to deal with. . .It's a pleasure to come to
work here."

You**

cp^GO

DIRECT B707 FREIGHTER
FLIGHTS BETWEEN

MIAMI, NEW YORK, HOUSTON,
JAMAICA AND
TRINIDAD & TOBAGO
AND BARBADOS, PLUS
INTRA-CARIBBEAN SERVICE
Sales & Service Contact

MIAMI OFFICE
6285 N W 18th Si
Bldo. 2144
P O. Box 524185
Miami. Fla 33152
Tel: 13051 871 2680

to 2684
or 13061871 2186

to 2188
Cable: CARICARGO
Telex 6811583

NEW YORK OFFICE

Bm.ding No. 7
Rada, Road
JFK Int'l An port
Jamaica. MY 1 1430
Tel: (2121 056^1732
or: 4736
Cable: CARICARGO
Telex 421987

HOUSTON OFFICE

Host Int'l Hotel
18700 Kennedy Blvd
Houston Int'l Airport
Houston. Texas 77205
Tel: (7131 443 7736 to
7738

Cjble CARICARGO
Telex 790 287

Caribbean Air Ca.-go Company Ltd.

Wholly owned by the
Governments of Bai .idos
and Trinidad & Tobaqo

THE BARBADOS
DEVELOPMENT BANK

provides

MEDIUM AND LONG-TERM
FINANCING

for projects and enterprises in

• INDUSTRY • SMALL BUSINESS
• TOURISM • SMALL MANUFACTURING

including Financial Assistance for
WORKING CAPITAL and SOLAR HEATING EQUIPMENT.

We make medium and long-term finance available for up
to fifteen years. Several Barbadians have benefited from our
loans in order to start new businesses or expand existing ones.
These projects have, in turn, contributed to the Nation's
economic development mainly by way of employment gen-
eration and foreign exchange earnings.

BARBADOS DEVELOPMENT BANK

National Petroleum Corp., Wildey, St. Michael, BARBADOS.
Telephone: (809) 42 60512 • Cable BARDEBAN.

At the center of the government's strategy for
/ersifying the Barbadian economy are the Industrial
rvelopment Corporation and the Central Bank of
rbados.

he IDC has done a good job at diversifying (our
:onomy) . . .in manufacturing, in attracting overseas
westors here and in educating our people. Today, as
ur standards of education have risen, people want
'eater challenges in their work. "

John Stanley Goddard, Barbadian businessman

When the Barbados government formed its
dustrial Development Corporation 25 years ago, it
arged the IDC primarily with creating jobs. That the
C has done largely by promoting the availability of

cheap, literate labor, of corporate tax holidays and
tariff exemptions to foreign investors who bring capital,
technology and markets. "We have to a large extent,"
says IDC general manager Rawle Chase, "achieved our
desires there." In its most recent four-year plan, just
ended, the IDC had targeted 1,200 new jobs a year.
Even in the face of world recession, Chase estimates,
IDC averaged that.

Today, in what Chase and his board chairman Fred
Gollop describe as a dramatic shift in direction, the IDC
is going after different kinds of industry. Looking for
high tech industries that use higher skills and offer
correspondingly higher pay, it will seek manufacturers
who produce for Barbados and for the Caribbean
Common Market (CARICOM), a market of roughly
five million, rather than the export assembly industries
which it sought in the past.

Fast Facts of Barbados from
THE BARBADOS CHAMBER OF COMMERCE

Area: 166 square miles
Capital: Bridgetown

Government: Parliamentary democracy, member of

the British Commonwealth
Language: English
Population (1981 est.): 250,500

Labor force (1981 est.): 144,300; unemployment: 10.8 per cent
Monetary unit: Barbadian dollar: US$1 = B$2
Gross Domestic Product (1981): US$819 million
GDP per capita (1981): US$3,270
Average monthly wage (1980):

industrial department head— US$500 -$1200

secretary -US$2 75-500

electronics assembly operator— US$155-$215.
Index of industrial production (1971 = 100): 151.6
Average prime rate (1981)rl3 per cent
Retail price index (1980 = 100): U8.6
Total exports (1981): $194.5 million; to U.S.: $71 million
Total imports (1981): $571 million; from U.S.: $198 million
Tourism (1981): total visitors, excluding cruise ship —352, 600;

visitors from U.S. — 74,500. Earnings — US$263.5 million
(Sources: Ministry of Finance and Planning; Central Bank of Barbados)

"We have 420 employees here and all but two are
Barbadian. Long term, we'd like to have a Barbadian
run the facility. . .We're at a point where we can talk
about that. . .We have to commit to a program to
make that happen. . .Our people get around. Our
managers take AM A courses in the States or else-
where. For instance, one of my personnel people is
taking a special labor course in England. Their labor
laws are more relevant to personnel here than ours."
• "We don't have turnover problems. So far this year
our figure is 2.2% among operators. That's good.
Attendance for the year is about 95% . Those numbers
are favorable. They're competitive with the States.
Productivity is very good. We've spent time and
money training but after that productivity is high.

"There's a lot of union activity now from sources
different than in the past. Many people, including

ourselves, are concerned. There're new people and
new unions on the scene. . .We'll see. Traditionally,
Barbados has had well- organized unions with
basically responsible leadership. They haven't been
that hard to deal with."

"Living here varies. Quite honestly, some people hav<
problems. A woman coming here with her husband
can't work. But there're a thousand activities she car
get involved in. . Some people adapt beautifully. W
get off the island from time to time. We've travelled
to most of the other islands. Each is so different.
Barbados is much more advanced than other coun-
tries as far as its education, its infrastructure,
its transportation.

The people are friendly. They're genuinely nice
people to deal with. . .It's a pleasure to come to
work here."

yours

DIRECT B707 FREIGHTER
FLIGHTS BETWEEN

MIAMI, NEW YORK, HOUSTON,
JAMAICA AND
TRINIDAD & TOBAGO
AND BARBADOS, PLUS
INTR A-CAR IBBEAN SERVICE
Sales & Service Contact

MIAMI OFFICE

6286 NW lStti St
Bldg 2144
P.O. Box 624185
Miami, Fla. 33152
Tel: (3051 871 2680

to 2684
or (3051 871 2186

to 2188
Cable CAR ICARGO
Telex: 6811583

NEW YORK OFFICE

Building No 7
Rada. Road
JFK Int'l Airport
Jamaica. NY 1 1430
Tel: (2121 656-4732
or: 4 736

Cable. CAR ICARGO
Telex: 421987

HOUSTON OFFICE

Host Int'l Hotel
18700 Kennedy Blvd
Houston Int'l Airport
Houston. Texas 77205
Tel (7131 443-7736 to
7738

Cable CARICARGO
Telex. 790287

Caribbean Air Cargo Company Ltd.

Wholly owned by the
Governments of Barbados
and Trinidad & Tobago

□a

THE BARBADOS
DEVELOPMENT BANK

provides

MEDIUM AND LONG-TERM
FINANCING

for projects and enterprises in

• INDUSTRY • SMALL BUSINESS
• TOURISM • SMALL MANUFACTURING

including Financial Assistance for
WORKING CAPITAL and SOLAR HEATING EQUIPMENT.

We make medium and long-term finance available for up
to fifteen years. Several Barbadians have benefited from our
loans in order to start new businesses or expand existing ones.
These projects have, in turn, contributed to the Nation's
economic development mainly by way of employment gen-
eration and foreign exchange earnings.

BARBADOS DEVELOPMENT BANK

National Petroleum Corp., Wildey, St. Michael, BARBADOS.
Telephone: (809)42 60512 • Cable BARDEBAN.

At the center of the government's strategy for
versifying the Barbadian economy are the Industrial
•velopment Corporation and the Central Bank of
rbados.

he IDC has done a good job at diversifying (our
■onomy) . . .in manufacturing, in attracting overseas
vestors here and in educating our people. Today, as
xr standards of education have risen, people want
■eater challenges in their work. "

John Stanley Goddard, Barbadian businessman

When the Barbados government formed its
iustrial Development Corporation 25 years ago, it
arged the IDC primarily with creating jobs. That the
C has done largely by promoting the availability of

cheap, literate labor, of corporate tax holidays and
tariff exemptions to foreign investors who bring capital,
technology and markets. "We have to a large extent,"
says IDC general manager Rawle Chase, "achieved our
desires there." In its most recent four-year plan, just
ended, the IDC had targeted 1,200 new jobs a year.
Even in the face of world recession, Chase estimates,
IDC averaged that.

Today, in what Chase and his board chairman Fred
Gollop describe as a dramatic shift in direction, the IDC
is going after different kinds of industry. Looking for
high tech industries that use higher skills and offer
correspondingly higher pay, it will seek manufacturers
who produce for Barbados and for the Caribbean
Common Market (CARICOM), a market of roughly
five million, rather than the export assembly industries
which it sought in the past.

Fast Facts of Barbados from
THE BARBADOS CHAMBER OF COMMERCE

Area: 166 square miles
Capital: Bridgetown

Government: Parliamentary democracy, member of

the British Commonwealth
Language: English
Population (1981 est.): 250,500

Labor force (1981 est.): 144,300; unemployment: 10.8 per cent
Monetary unit: Barbadian dollar: US$1 = B$2
Gross Domestic Product (1981): US$819 million
GDP per capita (1981): US$3,270
Average monthly wage (1980):

industrial department head -US$500 -$1200

secretary - US$2 75-500

electronics assembly operator— US$155-$215.
Index of industrial production (1971 = 100): 151.6
Average prime rate (1981)rl3 per cent
Retail price index (1980 = 100): 118.6
Total exports (1981): $194.5 million; to U.S.: $71 million
Total imports (1981): $571 million; from U.S.: $198 million
Tourism (1981): total visitors, excluding cruise ship— 352, 600;

visitors from U.S. — 74,500. Earnings — US$263.5 million
(Sources: Ministry of Finance and Planning, Central Bank of Barbados)

IDC wants industries that fill CARICOM's needs
and thereby reduce costly imports. Joint ventures that
combine local knowledge and capital with foreign
technology and capital complete the plan. "We're going
to encourage local Barbadian and regional Caribbean
investors to become involved," says Gollop. "We still
need to maintain and develop foreign enterprises for
export," Chase adds, "but we must get more into
developing local entrepreneurs, local operation." For
those joint venture partners IDC is looking to the U.S.
and Canada, to Europe and to Japan.

"A central bank gives a government the opportunity to
do good or bad. . . if used wisely it is an ingenious
invention. " Dr. Courtney Blackman, Governor

Central Bank of Barbados

One of the fringe benefits
of industry in Barbados
is Barbados

/

■ Barbados mdustr,ai \ 0f course Barbados is pro- business.

■ Development Corp \ Of course we offer excellent tax and duty breaks.
1 N^wSYork0nNY^oT7 \ 0ur workforce is literate and available, blue collar and
1(212)867-6420 \ white collar both.
| piease send information ^ Our government is stable.

I about Barbados

| f <Tle

J Company
£ Nature ol Business
^ Address
^ telephone

I

^ But there's something more.

Barbados

* It's a marvelous place to live. And live well Very
\ reasonably.
V. Housing is more than adequate. There is

household help available. Food is good and
reasonable. And there's plenty to do
when the workday is done.

Ask the people who work tor
TRW, Becton-Dickmson,

| BARBADOS INDUSTRIAL DEVELOPMENT CORR

I
I

BARBADOS

% •••""»

Intel, Playtex and New

* American Library why
£ they like working in

* Barbados.
J You'll hear some very

f nice answers. We'll give
S you some more reasons too.
f Just fill in the coupon and
S return it to us.

F - 10-25 a*

The Barbados Central Bank in its ten-year life has
grown into far more than an agency to govern the
nation's money supply. Economist Courtney Blackman
is using the Bank to educate Barbadians in regional anc
international economics and, with the Bank's Sir
Winston Scott Lectures, to make it a forum of ideas
that touch directly on the nation's future. And it is
government's instrument for developing a financial
services industry — the twin to manufacturing in the
grand scheme to diversify.

With low tax treatment as its lure, the Central Ban
is looking for offshore financial services — banking,
captive insurance companies, international business
companies and shipping registration — to operate from
within Barbados. Barbados became a low-tax haven
(as opposed to a no-tax haven, Central Bank General Ma
ager Teddy Griffith emphasizes) iri
1965 when Parliament passed an
International Business Companies
Act. Today some 90 companies
registered under the IBC Act pay
only 2.5% corporate income tax
(instead of the normal 45%) but
may not trade in Barbados or in
CARICOM countries.

In 1979 Parliament enacted ar
offshore banking law that by Janu
ary 1982 had attracted Barclays,
Royal of Canada and the Barbado
International Bank and Trust. In il
first full year of operation the
country's offshore banking industi
had amassed assets of $150 million
mainly from the Eurocurrency
market. While the Central Bank
monitors the industry, strict laws <
confidentiality limit it.

A shipping registration act, oi
the books but not yet on line, will
permit Barbados to offer shippers
a flag of convenience much as
Panama and Liberia.

The captive insurance industr
will complete Barbado's financial
services. As Griffith says, "By yea
end we expect to be in an aggressr
position with all our legal frame-
work in place. We'll be able to tall
to promote, a full package of all
financial services."

'Companies' are but bread sharers, and
rivals' are mere river dwellers, reports
iur authority on word derivations.

Why a merger
is like a duck

By Steele Commager

T|he business world seems to be
inhabited exclusively by verbal
behemoths — companies, con-
ortiums, monopolies and oligopolies,
lie polysyllabic titles lumber along,
nvested with the full dignity, mys-
ery and vague menace of their Greek
nd Latin ancestry.

Yet these names are not actually so
terce; some are even beguilingly gen-
ie in their basic meanings. A "com-
any," for instance, is usually regard-
d as something dismayingly m-
uman. And so it is, legally. As
istinct from the more approach-
ble "partnership" (partners are
t least human beings), a "com-
any" exists merely as a legal en-
ity, and none of the company's
fficers bears individual responsi-
ility for the company's debts or
labilities. The etymology of
company," however, suggests
omething quite different, some-
hing not only human but even
amilial and intimate. "Com-
any" shares the same root as the
nore genial words "companion"
nd "accompany." We speak of
laving "company" for dinner
nd, if we enjoy the evening, of having
«en "in good company." When the
uests leave, we "part company." The
requent use of "company" in the con-
ivial context of a meal is no accident,
□r "company" and "companion"
ioth derive from the idea of a shared
ileal. Both words come from the Lat-
ti cum, "with," plus paras, "bread." A
companion" is someone with whom
ou break bread, and a "company" is,
iterally, a gathering of people who
hare their bread.

leele Commager is professor of Greek and
atin at Columbia University

The modern slang term "bread,"
meaning "money," is quite unrelated.
(Like "dough," similarly used a gen-
eration ago, "bread" is unleavened by
any obvious Latinate ingredient and
will probably soon crumble and disap-
pear.) Still, the use of "bread" to mean
money does add a certain accidental
piquancy to the term "company," or
"bread sharers."

Company directors have not, tradi-
tionally, been thought of as very com-
panionable types. To improve their
image, and that of their company,

COMPANY

they have lately taken to holding
"symposiums" for the company staff.
All very reasonable, etymologically:
A group that shares its bread should
also share its wine and be sympo-
siasts. "Symposium" comes from the
Greek.sivz, "with, together, " plusposis,
"drink." One of Plato's better-known
dialogues was entitled "The Sympo-
sium," and takes place at a banquet
table presided over by Socrates. It
ends with all the "fellow drinkers"
sleepily temulent, except for Socrates,
who continues to muse upon the
chances of the same man's writing
both tragedy and comedy. Few busi-

ness symposiums today are so elevat-
ed in their speculations. Yet a "com-
pany symposium," by definition a
sharing both of food and of drink,
should, properly, approximate Alex-
ander Pope's definition of an ideal
gathering: "the feast of reason and the
flow of soul."

At company symposiums there is
also sometimes a feast and a flow of
private information — perhaps talk of
earnings or, these days, of losses. The
speaker may warn that what he says is
to be taken in confidence, or sub rosa.
Thus, from 1708:

But when we, with caution,

a secret disclose,
We cry, "Be it spoken, Sir,

under the rose. "
Why should something said pri-
vately be termed "under the rose" or
sub rosa? Modern dictionaries suggest
that the rose was a symbol of secrecy
and that a rose was suspended over
the banqueter's table as a reminder
that anything said there should not be
repeated. A less elaborate and more
plausible explanation is given in Dr.
Johnson's Dictionary (1755). He
quotes Sir Thomas Browne: "By desir-
ing a secrecy to words spoke under the
rose, we mean, in society and compo-
tation, from the ancient custom in
symposiack meetings, to wear chap-
lets of roses about their heads." Ro-
mans attending a symposium — or
its Latinate equivalent, "compo-
tation" — often wore rose
wreaths, or chaplets, upon their
heads. Whatever these festive
companions said to one another
at such symposiums, when their
tongues were loosened by wine,
was assumed to be secret, confi-
dential and privileged — or, in the
more flowery phrase, sub rosa.

Let us return from wine to
bread and from symposiums and
compotations to companies. One
of the better companies to invest
in is one that does not share its
bread too indiscriminately. A
monopoly, for instance. A "mo-
nopoly" is the "sole seller" of some
product; it comes from the Greek
mono-, "one, single, sole," plus poleo,
"sell." The prefix "mono-" is familiar
in English: a monotone is a single
tone; a monologue is a speech by one
person; monarchy is a single person's
rulership; a monocle is an eyeglass for
one eye; monogamy is marriage to one
person alone (as opposed to bigamy, or
even more extravagant gestures). The
Greek prefix mono- became so well
established as to exercise a virtual
monopoly on all English words begin-
ning with those four letters. One of
the few exceptions is a proper name,

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184

the Monongahela River, an American
Indian word that managed to assert its
native independence from the famil-
iar Greek root.

A monopoly, without competitors
or rivals, is hard to maintain, both
legally and practically. Oligopolies
are less difficult. An oligopoly exists
when there are only a "few sellers" of
a product; it comes from the Greek
oligos, "few," plus poleo, "sell." An
oligopoly bears the same relation to a

^ SYMPOSIUM ^

monopoly that an oligarchy ("few rul-
ers") bears to a monarchy ("single
rule").

Oligopolies, or their illegitimate
offspring, "oilogopolies," tend to fall
out among themselves: Witness
OPEC's internal quarrels. Then, for-
mer partners suddenly become com-
petitors, or rivals. "Competitors" are
"fellow seekers" (Latin cum, "with,
together," pluspeto, "seek"). The first
syllable of "competitor" is the same
as that of "company," but there the
resemblance ends. When companies
become competitors they are no long-
er trying to share the bread; instead,
each "seeks" it all for itself. Or as
Arthur Hugh Clough, in the 19th cen-
tury, sardonically put it:
Thou shall not covet,

but tradition
Approves all forms of

competition.
"Rival" is less obvious than "com-
petitor" in its derivation. Both "rival"
and "derive" come from the same Lat-
in source, the word for "river," rirus.
To know a word's "derivation" is to
know from (ch>) what river (rirus) it
flows. "Rival" also has to do with a
river, but its derivation is a more me-
andering one. A river has two banks,
and "rivals" are the inhabitants of
those opposite banks, two people
sharing the same river, or rirus. A dic-
ey situation, one that leads easily to a
competition over who should control
the stream. Two such people might
become "partners," each taking a
"part" of the stream. Or, if each
should insist on exclusive ownership,

they become, in Shakespeare's phrase,
"rival enemies," arguing from oppo-
site banks.

One way to deal with a "rival" is to
cease competing, and merge, always
providing that the Justice Department
casts a benign eye upon the union.
Often the first step in a merger is for
one company (Company A, say) to
make a "tender offer" for another
(Company B). Why, we wonder,
"tender"? Such proposals are not nor-
mally based on affection, or tender-
ness, but on cold calculations and
hard cash. Properly enough, the word
"tender" has nothing to do with the
adjective meaning "delicate," or "lov-
ing." Instead it is a noun, deriving
from the French verb tendre, "to of-
fer." Tendre, in turn, comes from the
Latin verb tendo, tendere, "to stretch,
extend." The original force of the En-
glish "tender" appears clearly in such
phrases as "to tender my resigna-
tion"— to offer it, to extend it. Simi-
larly, "legal tender" is money that
may be legally tendered or "offered"
in payment.

When Company A makes its "ten-
der offer" for Company B, it proposes
to buy, usually at a premium, the
stock of Company B that is "ten-
dered," or "extended" by the stock-
holders of Company B. The "offer" (of
money) is made by Company A; the
"tendering" (of stock) by Company B.
Naturally, Company A hopes that its
offer will be accepted and that a union
of the two corporate bodies may be
consummated quickly and without

resistance. Yet often Company B
proves skittish and coy. "Not in the
best interests of the stockholders" is
the usual formula of rejection, one
which cynics are likely to translate as
meaning that B's present manage-
ment may be fired if the merger goes
through.

What Company A proclaims to be a
marriage made in corporate heaven,
Company B may protest as an uncer-
emonious rape. In such a case, the
courted — or threatened — Company B

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may implore the attentions of another
suitor, Company C. It is hoped that
C's intentions will be more honor-
able, and its methods gentler, than
those of Company A; that it will bet-
ter espouse the interests of Company
B and offer a fertile union with it.

Company C, thus encouraged to en-
ter the lists, is often termed a "White
Knight" — that is, a savior and a pro-
tector, playing a role like that of Sir
Walter Scott's Lochinvar:
So faithful in lore,

and so dauntless in war,
There never was knight
like the young Lochinvar.

The White Knight figure has had a
long and edifying career, stretching
back through medieval romances to
the Bible, where the Father himself
appears in such a guise: "And I saw
heaven opened, and behold a white
horse; and he that sat upon him was
called Faithful and True, and in righ-
teousness he doth judge and make
war" (Revelations 19:11).

When two companies merge, it is
usually the smaller one that is merged
into the larger, as Conoco was merged
into Du Pont. "Merge" comes from
the Latin verb mergo, mergere, "to
sink, to plunge." The assets of the
smaller company are customarily
sunk, plunged or immersed into those
of its larger partner. The same rrierg-
root appears also in the name of a
duck, the "merganser" [mergo plus
anser, "duck, goose"). The merganser
is so named because it is a diving
duck, one that "plunges" into the

water to carry off unwary fish.

The corporate term "merger," with
its etymological suggestion of sinking
or plunging, is somewhat misleading.
The merganser duck may immerse it-
self in the water, but then it emerges
and soars. Similarly, a "merged" com-
pany's assets may be "plunged" into
those of a larger corporation, but the
merged company's stock very rarely
"plunges" in price. Instead, the stock
normally soars, as stockholders of
Conoco, when it was merged into Du

Pont, can happily attest.

When rival companies merge, they
pool their assets. Given the aquatic
metaphor behind "rival" (river) and
"merge" (immerse), logic would sug-
gest that "pool" also refers to a com-
mon body of water. But English is
seldom so pellucid. "Pool," as in a
"pooling of assets," instead derives
from the French word for "pullet,"
poule. "To pool," in the sense of "to
combine," has nothing to do with a

pool of water; etymologically, it is a
bird of a different feather. When we
speak of a "car pool," or a "betting
pool," the underlying metaphor
seems to be that of a common nest in
which the various pullet (poule) eggs
are deposited, or "pooled." Odd — but
if mergansers are linguistically relat-
ed to mergers, why should pullets not
be connected with pools?

In the Sixties (and perhaps still), it
was common for companionable indi-
viduals to pool their assets to buy
stocks. Usually such a pool would be
started by one person who was willing
to contribute money that he had set
aside as a reserve, or "nest egg." A
"nest egg" is an egg, either natural or
artificial, placed in a bird's nest to
encourage the bird to lay its own eggs.
Similarly, if one person contributed
his "nest egg" to begin a financial
pool, other investors would more
willingly add their own contributions
to the pool. And if the resulting pool
grew at a healthy rate, it would prove
that one might, on occasion, safely
put all one's eggs, or even nest eggs, in
one basket.

Companies, like individuals, may
decide to pool their assets when there
is a large project in hand, such as the
Alaska pipeline, which will require
more than $25 billion. Since no single
company has the money for so ex-
travagant an enterprise, various com-
panies will cooperate and form a
"consortium." And, as is only proper
for so grand a project, "consortium"
has a grander etymological suggestion
than "company." A company merely

"shares bread," a consortium "share;!
fate" (Latin cum, "with," plus soM
"fate, lot").

A sobering prospect, to share one's
fate with a fellow, no matter how
companionable. Almost as serious as
getting married. Fittingly, "consor-
tium," when not used as a business
term, occurs almost always as a legal
term in marriage proceedings, anothei
situation in which the partners arc
assumed to "share their fates." A
business consortium is a kind of cor-
porate marriage. And, as with othei
marriages, it need not be permanent
The "fates," or sortes, of the various
companies are intertwined — but only
temporarily. When the project foi
which the consortium was formec
comes to an end, the various compa
nies enact a kind of corporate divorce
and go their own ways again. The
consortium is finished.

"Consortium," as a business term
implies that the "joining of fates" will
not be permanent. Sadly enough, the
same would seem to be true of the
word's connubial use, for the terrr
"consortium" now appears most of
ten in divorce proceedings. One
spouse is likely to sue the other foi
"loss of consortium," a euphemisrr
for saying that one spouse has beer
deprived of the comforts, especially
the comforts of sexual intercourse
that he or she had the right to expeci
from a marriage.

So much for the intimidating in
habitants of the corporate jungle. Ety
mologically, these behemoths are lit

tie more than baa-lambs. Companie:
are but bread sharers; pools are jus
pullet eggs; rivals are mere rive
dwellers, and consortiums no mor<
than married couples. Defended
such etymological armor, why shouk
anyone worry about entering th<
world of higher finance? Let thes<
derivations be your shield. And, in th<
likely event that you perish, tak<
comfort from the fact that you di<
with a true word — or "etymology"—
upon your hps. ■

186

FORBES, OCTOBER 11, 1982

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The Money Men

Michael O'Higgins thinks success should
breed caution. "After you fail, you re. too
timid, ' ' he says. ' 7 like to be aggressive then.

Control your
emotions,
don't follow them

By Barbara Rudolph

It is a common dream: Give me a
few million dollars to invest, let
me play the market with a free
hand and I shall make my clients and
myself rich.

Michael O'Higgins, a 35-year-old
money manager who operates out of
his Cape Cod-style house in a
suburb of Albany, N.Y., pulled
it off. His portfolio has swelled,
from $900,000 four years ago to
$33 million today. What's more,
A.G. Becker calculates that
O'Higgins' total yield over the
past three years has averaged
20.2%. That places him in the
top 1% of all equity fund man-
agers rated by Becker.

If you picture your typical
money manager as a harried guy,
juggling lists of stocks, reading
obscure research reports and
barking telephone orders to his
broker, O'Higgins defies the ste-
reotype. He doesn't even use a
computer, and checks stock
prices on his cable TV. The attic
where he works is cluttered with
cardboard boxes full of yellow-
ing newspaper clippings.

O'Higgins can operate so
simply because he is a technical
analyst and follows market indicators
rather than corporate fundamentals.
He invests in only 30 companies,
components of the Dow Jones indus-
trial average. This buying just a few
stocks for all his clients keeps the
transaction costs down. So does trad-
ing through a single custodian, the
Bank of New York, which offers the
equivalent of a 75% discount on its
brokerage commissions.

O'Higgins' objective is to find
stocks that have been performing
poorly but are beginning to improve.
He uses a formula that determines the
relative strength of the Dow stocks; it
tells him how they are faring, com-
pared with the overall average. When
he senses a turnaround, he will buy
only the cyclical, fairly volatile Dow

Michael O'JiiggittS

"Follow guys who sell when everyone buys

stocks, avoiding the bluest of blue
chips such as IBM and GE.

For example, O'Higgins has done
well with Alcoa and International Pa-
per. "These stocks will really move,
way up or way down, with the mar-
ket," he explains.

The formula does not deliver every
time, of course. In fact, it didn't even
deliver the first time out. O'Higgins
started business in April 1978 and by

the end of the year his median ac^
count fell 15%. His formula failed
because the DJIA as a whole was sink-
ing — it dropped 15% between Sep-
tember and November. Take O'Hig-
gins' experience with Inco. Last May
he bought it because he saw that its
relative strength performance was lm
proving. But between May and Au
gust Inco lost 20% of its value. Why
The collapse of the nickel market and
troubles with its 1974 acquisition oi
ESB, Inc. — forces beyond the domain
of technical analysts. In retrospect,
O'Higgins concedes that a better uni
derstanding of the company's busij
ness might have kept him from!
buying its stock.

In determining whether to be in the
market at all, O'Higgins likes to "fol
low the contrarians, the smart moni
cy, guys who are buying when every
one else is selling, and vice versa." Foi
starters, he examines insider trading
levels and also considers the level of
short selling. When he sees special-
ists, such as NYSE members, short
selling, he turns bearish.

Where O'Higgins tends to fumble is
in real bull markets. In 1 980, for exam
pie, he ended the year in the bottom
35% of equity managers monitored by
A.G. Becker with his median account!
up 26.2% — a below-averagej
showing for that bull market
After a good first quarter, O'Hig-
gins bought nine-month Trea-1
sury bonds, locking in 16%
yield. "I got some complaints
that year," O'Higgins says. "I
know that I'll never make as
much money as my competitors]
in speculative bull markets, but I
don't give up what I make in bear
markets, either." That proved
true last year. In 1981, a bloodyl
year for most money men,
O'Higgins' median account was
up 7Vi%. He missed this year's
August rally, though, with "not
a dime" in the stock market.

O'Higgins' success in bear
markets and relative weakness
in bull markets reflects his abili-
ty to go against instinct. He tries
to do what feels wrong. "Most
." people get too confident when

• they're successful. I try to bd

conservative then, so I won't make as
much money in bull markets. Similar-
ly, after you've failed, you're too timid
I like to be aggressive then," he says.

That can be good advice — as O'Hig
gins' third-quarter 1981 showing
demonstrates. He was hit hard by the
market — at one point dropping 10%
more than the S&P's 500, losing 10%
of his total capital and 5 of his 69
clients. So O'Higgins took a deed

190

FORBES, OCTOBER 1 1, 1982]

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Watch

Bora-Warner

For an annual report write: Borg-Warner, Dept. 50. 200 South Michigan Avenue, Chicago, Illinois 60604

The Money Men

Michael O'Higgins thinks success should
breed caution. "After you fail, you're, too
timid, "hesays. "I like to be aggressive then. "

Control your
emotions,
don't follow them

By Barbara Rudolph

It is a common dream: Give me a
few million dollars to invest, let
me play the market with a free
hand and I shall make my clients and
myself rich.

Michael O'Higgins, a 35-year-old
money manager who operates out of
his Cape Cod-style house in a
suburb of Albany, N.Y., pulled
it off. His portfolio has swelled,
from $900,000 four years ago to
$33 million today. What's more,
A.G. Becker calculates that
O'Higgins' total yield over the
past three years has averaged
20.2%. That places him in the
top 1% of all equity fund man-
agers rated by Becker.

If you picture your typical
money manager as a harried guy,
juggling lists of stocks, reading
obscure research reports and
barking telephone orders to his
broker, O'Higgins defies the ste-
reotype. He doesn't even use a
computer, and checks stock
prices on his cable TV. The attic
where he works is cluttered with
cardboard boxes full of yellow-
ing newspaper clippings.

O'Higgins can operate so
simply because he is a technical
analyst and follows market indicators
rather than corporate fundamentals.
He invests in only 30 companies,
components of the Dow Jones indus-
trial average. This buying just a few
stocks for all his clients keeps the
transaction costs down. So does trad-
ing through a single custodian, the
Bank of New York, which offers the
equivalent of a 75% discount on its
brokerage commissions.

O'Higgins' objective is to find
stocks that have been performing
poorly but are beginning to improve.
He uses a formula that determines the
relative strength of the Dow stocks; it
tells him how they are faring, com-
pared with the overall average. When
he senses a turnaround, he will buy
only the cyclical, fairly volatile Dow

Michael O 'Higgins

"Follow guys who sell when everyone buys

stocks, avoiding the bluest of blue
chips such as IBM and GE.

For example, O'Higgins has done
well with Alcoa and International Pa-
per. "These stocks will really move,
way up or way down, with the mar-
ket," he explains.

The formula does not deliver every
time, of course. In fact, it didn't even
deliver the first time out. O'Higgins
started business in April 1978 and by

the end of the year his median ac-
count fell 15%. His formula failed
because the DJIA as a whole was sink-|
ing — it dropped 15% between Sep-
tember and November. Take O'Hig-
gins' experience with Inco. Last May
he bought it because he saw that its
relative strength performance was im-
proving. But between May and Au-I
gust Inco lost 20% of its value. Why?
The collapse of the nickel market and
troubles with its 1974 acquisition of|
ESB, Inc. — forces beyond the domain
of technical analysts. In retrospect,
O'Higgins concedes that a better un-
derstanding of the company's busi-
ness might have kept him from
buying its stock.

In determining whether to be in the
market at all, O'Higgins likes to "fol-
low the contrarians, the smart mon-
ey, guys who are buying when every-
one else is selling, and vice versa." For
starters, he examines insider trading
levels and also considers the level of
short selling. When he sees special-
ists, such as NYSE members, short
selling, he turns bearish.

Where O'Higgins tends to fumble is
in real bull markets. In 1 980, for exam
pie, he ended the year in the bottom
35% of equity managers monitored by
A.G. Becker with his median account
up 26.2% — a below-average
showing for that bull market.
After a good first quarter, O'Hig-
gins bought nine-month Trea-
sury bonds, locking in 16%
yield. "I got some complaints
that year," O'Higgins says. "I
know that I'll never make as
much money as my competitors
in speculative bull markets, but I
don't give up what I make in bear
markets, either." That proved
true last year. In 1981, a bloody
year for most money men,
O'Higgins' median account was
up 7Vi%. He missed this year's
August rally, though, with "not
a dime" in the stock market.

O'Higgins' success in bear
markets and relative weakness
in bull markets reflects his abili-
ty to go against instinct. He tries
to do what feels wrong. "Most
." people get too confident when

• they're successful. I try to be

conservative then, so I won't make as
much money in bull markets. Similar-
ly, after you've failed, you're too timid.
I like to be aggressive then," he says.

That can be good advice — as O'Hig-
gins' third-quarter 1981 showing
demonstrates. He was hit hard by the
market — at one point dropping 10%
more than the S&P's 500, losing 10%
of his total capital and 5 of his 65
clients. So O'Higgins took a deep

190

FORBES. OCTOBER 11. 1982

Want to see more lives
saved from fire?

Borg-Wamer's Pyrotronics early warning system can sense fire before any sign of smoke, and
extinguish its threat with a nontoxic, nondestructive gas for protection beyond detection. That's Borg-Warner
today. And there's more to come. In eight major markets, Borg-Warner is a company to watch.

Watch

Bora-Warner

For an annual report write: Borg-Warner, Dept. 50. 200 South Michigan Avenue, Chicago, Illinois 60604

The Money Men

breath and jumped back into the mar-
ket, posting a 4% increase in the
fourth quarter. "It was a crisis but also
an opportunity," says O'Higgins. "I
thought, 'Gee, my clients are mad at
me, but I'm still up 7'/2% for the year
when everyone else is down 2%.
There must be some unhappy people
out there — someone else's clients.' "
In the end, O'Higgins did snare sever-
al accounts from his competitors.

O'Higgins is most aggressive when
he's actually most vulnerable because
he grew familiar with sudden changes
in his fortunes. His family lost every-
thing twice. The second time was
when O'Higgins was 14 and his father
abaiidoned his bankrupt soap and per-

fume factory in New Jersey. "That
prepared me," O'Higgins says.

It gave O'Higgins confidence to be
independent. In 1978 he was a stock-
broker for White, Weld & Co., making
$40,000 a year supporting his wife and
two kids. As White, Weld's business
was softening, O'Higgins decided to
go it alone. He rustled up clients from
his roster of White, Weld customers.
He owned the brownstone where he
lived, and "my only real expense was
food," he explains. O'Higgins also
persuaded his former secretary to type
for him in her spare time — on a
White, Weld typewriter — and he used
the local library to copy papers.

At first O'Higgins had to overcome
his salesman's instincts. "People
don't like to be sold directly by a
money manager; they want to call

you," he says. So he began what he
calls third-party selling. O'Higgins
calls local lawyers and accountants,
often blindly, asks them to lunch and
pitches his investment skills. "These
are the people that other people, po-
tential clients, will ask for advice," he
explains. Location helps, too, since
there are few professional money
managers in the Albany area.

O'Higgins, who says revenue from
his current accounts approaches
$150,000, appreciates that his clients
could disappear overnight. But for
him that's part of the fun. "When I
decided to start this business, my wife
asked me what would happen if I did
poorly and people sued me," O'Hig
gins says with his characteristic
laugh. "I told her, 'Honey, it's simple.
We lose everything.' " ■

Control Data may have had good inten-
tions toward its workers in South Korea,
hut good intentions weren 't enough.

The reluctant
union buster

By Pamela Sherrid

Atrip to the Orient always
promises adventure, but a few
b months ago two Minneapolis
businessmen got more thrills than
they bargained for.

The Control Data Corp. executives,
Roger Wheeler and Edward Vargon,
flew to South Korea to mediate a labor
dispute at a Seoul computer compo-
nent plant where most of the workers
were young women. Reacting to com-
plaints from U.S. church groups, the
two Americans v/ere looking into the
firing of six workers who had instigat-
ed a slowdown, but the Korean gov-
ernment insisted on punishing the
troublemakers. After explaining this
impasse to union leaders, the Ameri-
cans were getting up to leave the plant
at the end of the day.

Suddenly, 80 assembly-line work-
ers pressed into the small conference
room. "The union leaders said, 'Look,

South Korean President Chun Doo-I/iccm
Getting tough with labor.

you're not going to leave here until
you agree to bring back those six em-
ployees,' " recalls Vargon. "The girls
were screaming and shouting and
fainting and crying." With a mass of
women blocking the door, the two

men had little choice but to sit down
in shock. Their captors supplied cof-
fee and juice, but as the hours went by
that turned into its own kind of tor-
ture. "I had to decide whether I could
go to the bathroom in my pants with
dignity," Wheeler recalled.

Finally, a Korean male manager
slammed his fist on the table and de-
clared that the honor of South Korea
was at stake. He led the two Ameri-
cans to the bathroom. In the privacy
of the urmals, the Americans were
free to plan. None of the detainers
spoke English, so, back in the confer-
ence room, Wheeler placed a call to
Minneapolis under the pretext of dis-
cussing the rehinngs.

Instead he explained his predica-
ment to CDC Deputy Chairman Nor-
bert Berg, who set a rescue party in
motion by calling Senator David Dur-
enberger (R-Minn.). That got the
State Department involved. Finally,
Korean police arrived at the plant in
the wee hours of the morning.

The next day the Americans were
safely on their way back to the Mid-
west, but CDC's troubles were far
from over. Its fundamental problem
in Korea was the all-too-familiar one
of technological change. Microelec
tronics had overtaken the workers'
painstaking handwinng, employment
had fallen and CDC officials say clos-
ing their Seoul facility was inevitable.

The company, however, was also
trapped on a political battleground be-
tween a government willing to use
authoritarian tactics to keep labor
costs in line and a singularly militant
union. When he came to power in
1980, President Chun Doo-Hwan
purged the labor unions, leaving them
even weaker than under his assassi-
nated predecessor, Park Chung-Hee.

FORBES, OCTOBER 11, 1982

to i«l

Two of thefew things
you can count on.

nrVlOtl

there's so little to be sure

of ^erica's most respect*, insurance
— S'iuse oftj.speo.pro~

Is this because " ; - "ucy? Because
we know how to write m o apaHg^

S^SWK rofbSuse of our
tSorresponsivec^e^ ^
T,'s all of these things and more ij

;rciai msuia..' „.,„. nf nrotection

CHUBB

. -^o r.nmoanies

too William Street, New

EXPORT COUNTRY

A shrinking world has put South Africa's wealth of
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SOUTH AFRICA

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The Consul (Commercial)

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1980 S. Post Oak Blvd., Suite 1520
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444 N. Michigan Ave., Suite 3100
Chicago, IL 60611 (312) 828-9200

9107 Wilshire Blvd. , Suite 400
Beverly Hills, CA 90210 (213) 858-0380

Don't make your mail
come looking for you.

If you don't notify everybody at
least one month before you move,
some of your favorite mail may
spend a lot of time looking for your
new address.

You can pick up a free Change- f^£'\
of-Address Kit at the Post Office f M \

to make notifying even easier.

Also, be sure to look in magazines
and use the convenient change-of-
subscription form as well.

Moving should be an enjoyable
experience. But it won't be fun if
your mail gets left behind.

Let everybody k now where you're moving to.

c' USPS 1981

Still, CDC's union had unusual!
Strength because the company pro-
tected it from the government's toughj
policies. CUC led the Korean elecJ
tronics industry m wages. The unioni
also had close ties with a Christian!
activist group that "teaches workers)
to organize," says a State Department
expert. "That's tame stuff to us, but jfl
a Confucian society it seems radical."!

Finally, CDC's own blunders did
not help. "The company did not keen
its Korean management or union inn
formed about its economic prowl
lems," says a State Department oml
cial, and CDC underestimated the ad-j
versanal tensions in Korea. Thcsq
cultural crossed wires short circuited!
into ugly violence in July. Rumors)
began to fly that CDC had decided td
close its plant for good. Through the
human rights network, however, the
union heard the news before manage-
ment. Left in the dark by headquar--

The Korean government
used the closing to launch
an antilabor media blitz, in-
eluding documentaries on
the evils of church activists*

ters, CDC's Korean supervisors — all
male — felt that the union, not techn
nology, was costing them their jobsj
As the women workers were leaving
work on a Friday evening, the managj
ers attacked the union leaders. Five
women were hospitalized.

The Korean government, used the
plant closing to launch an antilaboi
media blitz, including TV documen-
taries on the subversive nature of reli-
gious activists. U.S. church leaders
don't dispute CUC s right to close arl
obsolete plant; they are dismayed ai
the timing and the Korean govern-
ment's reaction. Now the National
Council of Churches threatens tq
raise this issue in every country where
CUC operates. The company says it is
offering generous severance pay and
retraining to the laid-off workers — but)
the churchmen are skeptical.

If this sounds like a mess, it is — all
the more so because CUC has already
tangled with church groups over its
role in South Africa. The South Kore-
an government isn't a clear-cut villain
either. It is afraid that strong unions
would shift foreign investment tc
lower-wage countries like Indonesia
and the Philippines. The lesson: It
takes far more than good intentions td
manage Third World workers, and big
corporate headaches can result. Rej
member that when you are thinking
about closing that plant in Ohio. ■

194

FORBES, OCTOBtR 11, 1982

The old grey hare just ain't what he used to be.

Old age and poor circulation go hand in hand and the bunny
isn't getting any younger In fact, since 1972, Playboy's total
circulation has tumbled by more than 16 million copies or 25%.
(While Penthouse increased its total circulation by 129% in the
same period

But the greatest blow of a
the real battleground for
competitive sales.
Playboy's once imposing
newsstand presence has
collapsed by 49% (During
the same 10-year period,
Penthouse enlarged its
newsstand sale by 1 19% to
become, issue for issue,
the industry's all-time
biggest provider of profits.)

And What
About Demographics?

Playboy's upscale
readership has fallen on
equally difficult times Male
readers with college
educations are down 15%

was on the newsstands,

The last 10 years

Comparison between Penthouse
and Playboy from 1972 through 1981

Playboy

Penthouse

Newsstand Circulation

-49%

+ 119%

Total Circulation

-25%

+ 1 29%

Total Male Readership

-21%

+ 348%

Men Attended/Graduated College

-15%

+ 292%

, 1

Men Protessional/Managerial

-26%

+ 306%

Male readers with professional and managerial positions are
down 26%.

The reverse is true for Penthouse. According to SMRB,
today's Penthouse younger reader is more affluent, and holds a
higher position in business than the reader of Playboy. What's
more, Penthouse's college educated male readership is up

292%. And its professional
and managerial readership
is up 306%

The Reason.

Playboy magazine hasn't
changed all that much in
the last 10 years, but the
world has! And so has its
tastes and expectations

Today's trend-setters
and opinion-makers have
a choice: safe, non-
controversial, predictable
Playboy or provocative,
proud and controversial
Penthouse. The figures
speak for themselves

The PLAYBOY reader... his lust was for a better magazine.

Combining two parts hydrogen with one
part oxygen isn't as easy as you would
think. Combining professors and business-
men may not be either.

Business goes
to college

By Paul B. Brown

Researchers work at Canu "Je -Mellon University's Robotics Institute
Joining forces with th est and brightest.

W' HEN IBM ANNOUNCED LAST
month that it will give $50 mil-
lion in cash and equipment to 20 engi-
neering schools, it became part of .
rapidly growing list of corporations
trying to join forces with the brains aj
the nation's top universities.

Appealing as it may seem to enlist
the nation's 115,000 research profes-
sors and their students in the battle tc
make industry more productive
IBM — like Monsanto, Exxon and the
others before it — will find the mergei
won't be accomplished by just writing
out a check.

But, the incentive is there for both
to try.

For the nation's 100 or so majo:
research universities the carrot is
grant money. Up until recently, i
didn't much matter if the work bein$
done in a university had any commer
cial application. Two-thirds of univer
sity research funding came from ;
nonprofit entity — the government—
which has little interest in the com
mercial applications of discoveries.

But this is beginning to change, as
Uncle Sam starts to tighten the purse
strings. By next year federal funding
to universities for basic research wil
have declined 8% (in constant dol
lars) since 1967. In addition, universi
ties have been losing bright younj
faculty members to business, whicf
offers better research equipment anc
more money.

Paul Gray, president of MIT, sum;
up the situation: "The research uni
versities in the U.S. are in a fragile anc
somewhat anemic state, followinji
more than a decade of declining finan
cial support, fierce inflation and flag
ging public support."

So the nation's top research univer
sities are starting to accept tentative
offers of financial support from busi
ness. Monsanto recently gave Wash
ington University in St. Louis $23. f
million for research in peptides anc
proteins. Stanford received $14 mil
lion from 19 companies to study inte
grated circuitry. Exxon sent $8 mil
lion to MIT to fund combustion re
search. In all, corporations gavi
universities $236 million for projec
research in 1980. While that is jus
6% of the $4 billion the governmen
spent on academic research last year
it still represents a doubling of corpo
rate funding in just three years.

The advantages to business fo
funding academic research are clear

• There are 673,000 full-time scien
tific research positions in the U.S
according to National Science Foun
dation figures, and more than 25% o

196

FORBES, OCTOBER 11, 1982

them aren't in industry.

• Giving grants to universities is
cheaper than doing the work in-
fiouse. There are no laboratories to
build, no salaries for support staff and
no perks. The research employees
still work for the university.

• Funding the research gives corpo-
rate research and development staffs
easier access to other bright minds in
their field — minds that may have a
different perspective.

• Providing grants also helps ensure
i better future crop of corporate re-
searchers. "There is an urgent need
:or advanced educational programs
:hat combine industrial and engineer-
ing disciplines, computer sciences
ind business administration," says
IBM President lohn Opel. "We want
:o be part of that cooperative effort."

Never have these advantages
seemed so appealing to U.S. industry.
\s sharply increased foreign competi-
:ion has sent America searching for
lew ideas to stay ahead, business has
started to wonder whether research
Deing done at universities could be an
mportant ally.

Some universities are years ahead
in areas that corporations now be-
ieve can be profitable. One example
s hybridoma research — where cancer
:ells and antibody cells are combined
:o form a hybrid cell which produces a
3ure antibody that can reproduce end-
essly. Another example is recombin-
int DNA. Here, characteristics of one
organism, say from a cell of an animal
:hat can produce insulin, are intro-
duced into a cell of another organism
Adhere they are wanted. Major univer-
sities, like Stanford and Washington
Jniversity, have been doing this re-
search for years, while it has been
/irtually ignored by business.

So if both sides are willing, why
.von't we soon see a steady flow of
new products coming from those ivy-
:overed laboratories? Well, to start
/vith, business and universities don't
hink in the same terms.

Edward David Jr., president of
ixxon Research &. Engineering Co.,
:xplains: "To the industrialist, paying
or research implies ownership of the
esults, which are used to establish a
proprietary competitive advantage if
it all possible. University faculty con-
iidcr themselves a community of
scholars whose primary objective is
he creation of knowledge. Commer-
ualization of that knowledge is seen
)y some academicians as exploitation
)f the public."

Universities also tend to dislike the
tusinessman's short-term focus on fi-
lancial results, which leads to re-
search designed to improve an exist-

:ORBES, OCTOBER 11, 1982

In financial futures,one company stands out.

Tick,Tick,Tick.

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it's like tor the thousands of sons and daughters of Huntington's Disease victims.

They wait. Hoping that the 50/50 odds of inheriting this terrifying, fatal
illness fall in their favor. With no possible way of knowing if and when it will strike.

Until the bomb goes off.
Give generously to the National Huntington's Disease Association.

Help make this generation its last.

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This space contributed by publisher

197

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iefore you invest in a
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hat's 1,000 sheets more than
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om up to three different sizes
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c 1982 ' ^

I SUBSIDIARY OF TRIUMPH-ADLER

ing product instead of trying to create
new ones. There is often a practical
reason for this bias among academics:
The California Institute of Technolo-
gy (Cal. Tech.), for example, rarely
will award a Ph.D. to a student if his
research only involves improving an
existing product. Not surprisingly,

corporate researchers agree with their
university colleagues on this point.
"You don't invent the transistor by
starting with the vacuum tube," says
C. Kumar N. Patel, executive director
of research physics at Bell Laborato-
ries. "You have to look at problems
from a different perspective."

Those problems are being worked
out. Major universities are developing 1
corporate funding guidelines which
require that grants can only specify an K
area to be worked in, not a particular t,
product. In return the corporate spon- 1
sor gets an exclusive license, with the BP
understanding he will do his best toL-
exploit the finding. (The intent is to r
prevent a corporation from sitting on I*
research that would hurt it competi- [
tively.) In cases of joint funding, like m
the integrated circuit project at Stan- 1
ford, the research findings are pooled
and everyone can draw on them. ;

It is probably in the long-term best I
interest of most businessmen to go I
along with these guidelines, frustrat I
ing as they may seem. Why? In ex- 1
change for their cooperation — and L
money — they get to market the re- 1
suits of the research right away. Left I
to their own devices, university pro- I
fessors agree that it usually takes 20 1
years from the time an idea is con- I
ceived until its introduction in the I
marketplace. "There is no question 1
that the closer business ties will help I
reduce this delay," says Washington I
University Associate Vice Chancellor I
Edward MacCordy.

Tlhe main reason for the delay, of I
course, is that professors, as a rule, T
just don't have any marketing exper- 1
tise and don't want to develop any. I
Their job, they say, is to discover If
things and explain what they have I j
found. Thomas Tsakalakos is a good I
example. As a graduate student at If
Northwestern in the mid-1970s, Tsa-I'
kalakos wrote his dissertation about a I
new process that would improve the|(
stiffness of several metal alloys, likelj
aluminum and copper, by 30% to l.
50%. If commercially feasible, thej'
idea could prove important to the 1 1
automotive and aircraft industries, I
which are always looking for ways to<l ,
make their products lighter and more I
fuel-efficient. But nothing muchJ;
came of Tsakalakos' dissertation.

Seven years later, Tsakalakos, now I
33 and an associate professor at I
Rutgers, is once again publishing a I
paper on alloys. This time the response I
is very different: "I have gotten some- 1
thing like 50 letters asking for more I
information." Flattered as he is by the
attention, Tsakalakos would rather
talk about his recent trip to Africa,
where he taught material science,
than talk about the possible commer-
cial application of his discovery. |
"They are so eager to learn," he says.

Is there a more efficient way to en- I
sure that the scientist and the busi-
nessman get together? What about a
federal research clearinghouse, for ex- I
ample? That idea is flatly dismissed I

Competing robots

In a laboratory at Rensselaer
Polytechnic Institute in Troy,
N.Y., graduate students and facul-
ty members are working to develop
a sense of touch in robots so the
robots can perform inspection du-
ties. The $60,000 project is funded
by General Electric.

Across the state border in Pitts-
burgh, Carnegie-Mellon Universi-
ty researchers are also working to
create robots that can tell the dif-
ference between picking up a brick
and picking up a marshmallow.
With this ability robots can be put
to work placing electrical compo-
nents on a printed circuit board.
Westinghouse has poured more
than $1 million into this project.

GE and Westinghouse, two com-
panies that have competed in ev-
erything from light bulbs to nucle-
ar energy systems, are now com-
peting in the development of
automation systems for the factory
of the future. And each company is
awarding several million dollars'
worth of research contracts.

Some 60 full-time scientists and
engineers staff Carnegie-Mellon's
three-year-old Robotics Institute,
initially sponsored by Westing-
house, with another 80 students
and faculty members working part
time. The 11 labs that constitute
the $5 million-a-year (contracts)
center conduct research in all areas
of automation, from walking ro-
bots (right now they are only hop-
ping), to sensor technologies using
lasers, to total manufacturing sys-
tems. Two Westinghouse high-vol-
ume factories — a Baltimore de-
fense plant and a North Carolina
turbine plant— will be the recipi-
ents of this new technology.

Westinghouse is also sending its
researchers to Carnegie-Mellon to
speed implementation of the tech-
nology. "You can't just supply
money to a university and expect
to come out with a manufacturing
system," says Tony Massaro, gen-

eral manager of Westinghouse's in-
dustry automation division. "If
you want to go directly from the
idea to implementation, there has
to be an exchange of people."

The three-year-old Rensselaer
Center for Manufacturing Produc-
tivity and Technology Transfer,
founded with seed money from
GE, operates much like the Carne-
gie-Mellon center does. Conduct-
ing similar research, the Rensse-
laer center employs eight project
engineers with master's degrees
and industrial experience who ride
herd over the students and faculty
involved in the projects.

But GE is using the center differ-
ently. "Rather than turn the uni-
versity loose and say, 'Have at us,'
we've been much more prescrip-
tive in terms of what we think we
could use right now," says George
Kuper of GE. For example, a recent
project developed the use of ultra-
sonics in measuring the elongation
of bolts. GE then puts the pieces of
new technology to use in a factory
system designed in-house.

Why contract a university to do
the research? To use the universi-
ty's expertise and to screen future
employee prospects. Kuper also
says, "It looked to us like this was
one way of raising the level of in-
terest among faculty in shop floor
problems."

Tressa Stratman, coordinator of
industrial relations for Carnegie-
Mellon, says there has been in-
creased pressure from corporations
on campus, and some correspond-
ing resistance from the university.
Still, Stratman adds a bit more
pragmatically, "If it were not for
industry, we would not have a test
bed for a lot of the research tech-
nology coming out of the institute.
And without that test bed, we may
be pursuing pipe dreams. And no
research institute can survive sole-
ly by pursuing interesting research
problems."— Laura Rohmann

FORBES, OCTOBER 11, 1982

25% of all the oil and gas the world uses comes through
our equipment.

C-E equipment helps find it,
drill for it,extract it, prepare it
for the pipeline, process it,
move it, and refine it.

All over the world, Combustion
.Engineering and its companies
tare helping to meet the continu-
ing need for oil and gas.

In dozens of countries, C-E
INatco equipment helps prepare
oil and gas for the pipeline. C-E
I Crest has designed systems that
produce 10 million barrels of oil
a day. Vetco Offshore, another
C-E company, provides systems
'that are found in every offshore
i producing area of the world.

For the Arabian American
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Lummus engineered and pro-
vided overall project manage-
ment for the world's largest
modular construction project:

over 30 giant desalting units
spread across 5,000 square
miles in eastern Saudi Arabia,
with a total desalting capacity of
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C-E: World leader in
energy technology.

We're helping to find and bring
in oil and gas. Upgrading and
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cleaner, more efficient ways
electric utilities and other indus-
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For more information about

our diverse lines of business,
and a five-year summary of our
Financial Highlights, write Com-
bustion Engineering, Inc. , Dept.
7004-241, 900 Long Ridge Road,
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Era COMBUSTION
ENGINEERING

The Energy Systems Company

by President Reagan's science advis-
er George A. Keyworth II. "We
would make a mess of it," he says
candidly. "Every time the govern-
ment tries to enter the private sector
to spur research, it has laid an egg.
All you have to do is look at the
synfuel program."

The problem may take care of itself.
As more corporations fund academic
research, fixed patterns of communi-
cations should develop. To make the
process even easier, faculty and gradu-

ate students might be encouraged to
work more closely with corporations
through more extensive use of sabbat-
icals and work/study programs.

Meanwhile, industry is becoming
more sensitive to the needs of acade-
mia. Says Emil Sarpa, corporate man-
ager of academic relations for Intel:
"With the federal government and
other sponsors backing off, the whole
future of basic research is in jeopardy.
If everyone took the position that
they were only going to do the type of

Numbers Game

How much need banks tell their sharehold-
ers about offshore loan exposure?

Breakdown?

By Richard Greene

i

ankAmerica concedes
1 that its loan exposure in
Mexico equals 60% of its
stockholder equity, but the
latest BankAmerica annual
report doesn't even mention
that country's name. Bank-
America simply breaks
down its overseas oper-
ations into four parts: Asia;
Europe, Middle East and Af-
rica; Latin America and the
Caribbean; and North
America.

Citicorp, which reported-
ly has some $2.5 billion of
loans outstanding to Mexi-
co— 2% of assets and 58% of
stockholders' equity — sim-
ply divides the world into
four different components:
North America; Caribbean,
Central and South America;
Europe; and Asia, Australia,
the Middle East and Africa.

The SEC merely requires
that banks break down their
foreign operations as they

research that related directly to their
own immediate needs, then basic re-
search would dry up."

"We don't expect to see industry
making a contribution to academe
that displaces the role of the federal I
government," Keyworth says. "This
is not the objective. The objective is
to bring academe to focus upon the
problems that are dominant today.
The problem is taking our technolo-
gy, the new science, into our industry
as rapidly as we possibly can. ■

deem appropriate. The only regulation
is that they must separate "geographic
areas" in which they have over 10% of:
assets, revenues or income. As a result,
with few exceptions, banks do not]
mention the names of individual coun-
tries. (A notable exception is Citi-J
bank's reference to Brazil, where it had
almost $5 billion in assets.)

Nobody cares about this kind of
disclosure until there's a major crisis
someplace, as there has been recently
in Iran, Poland and now Mexico.

Many bank accountants oppose
more specific overseas loan break-
downs, however. They suspect inves-
tors might misinterpret the new infor-
mation. When the news of Mexico was
first breaking, Manufacturers Hanovei
was in the unfortunate position oi
having disclosed its $1.4 billion expo-
sure in its 10-K.

Soon after the day the)
news about Mexico's second
devaluation struck, Manu-
facturers' stock dropped b>
three points and spread in-
vestor fear. But, within i
day, investors realized that
Manufacturers' exposure in
Mexico was not out of line
with other major banks.

In such an emotional ares
as foreign loans, the bant
accountants fear disclosing
country-by-country infor
mation that might lead tc
worse panics. They ma}
have a point. They alsfl
argue that segregation carj
be carried too far. If yoi
name individual countries
can individuals or compa
nies be far behind? Bu
there's also a strong argu
ment for more disclosure
Loans to countries repre
sent a huge portion o
many banks' portfolios — sq
large that they woulo
g£p threaten the entire bank':
— future if endangered. ■

202

FORBES, OCTOBER 11, 1982

grj a
Mi •■ *

Go/d Starr of America Inc.,
a member of The Lucky
P Group, announces the opening
■y o/ /?s new co/or 7"K factory in
Huntsville, Alabama.

y -jars ■' : «■
- V ■ .\v\Mi

v. ,M

This year marks the centennial of

diplomatic relations between S-*.S|^^MK» ....

the United States and the Republic 'VwiHjfi^^^Wi'i
of Korea. ' v "

mm i

Ringing Out the News of
Business Friendships that Really Work

One important part of The Lucky Group's 35 -year
tradition is making mutually beneficial business
partnerships that really work. This includes more
than a dozen of Korea's most highly successful joint
ventures and technical tie-ups, and now it extends
to investment overseas in new manufacturing
subsidiaries.

Through its work in chemicals, semiconductors
and computers, electronics and communications,
energy and resources, insurance and securities, and
public services, The Lucky Group has rung up a
fine record of growth, a good indication of how

well our programs of cooperation— and research
and development — are doing.

Keep listening and you'll hear more of The
Lucky Group ringing out the great changes that
are coming to the industries of not only Korea but
the world.

For more information contact our trading
house, Bando Sangsa Co. , Ltd. , 537 Namdaemun-
ro 5-ga, CPO Box 1899, Jung-gu, Seoul 100,
Korea. Phone: 771-32, Cable: FOURCLOVER
SEOUL, Telex K27266, K27470.

fy\f^\ Transforming dreams into reality

& THE LUCKY GROUP

□ Lucky, Ltd. DBandoSangsa DGold Star Go., Ltd. DGold Star Cable DLucky Continental Carbon DGold Star Tele-Electric DLucky Development DGold Star
Electric DHee Sung DLucky Securities DGold Star Instrument & Electric DGold Star Precision Industries DLucky Engineering DShinyeong Electric DGold Star
Semiconductor DHonam Oil Refinery DKorea Mining & Smelting DPan Korea Insurance DGold Star Alps DThe Yonam Foundation DThe Yonam Educating! Institute

Change can be swift or gradual. But either way, it is
inevitable. Sometimes the results fall into the realm of the
spectacular. Other times, change is simply the process of
getting better or enduring where others falter.

Behind me is ore magnificent example of what change
can achieve. Before me :s another. Today, after many success-
ful decades of change, The Greyhound Corporation is in the

best and strongest financial condition in its history.

The prospect of leading this major corporation
the coming years is one I find exhilarating. We're builc
the best of the past and present and going whereve
structive change can take us.

My objectives as chairman and chief executiv*
are not just growth, but quality growth; not just profital

ome things are timeless . . ."

W. Teets

tan of the Board and Chief Executive Officer
eyhound Corporation

3 profitability. The process of change and diversifica-
t Greyhound has benefited from in the past is more than
■irable. It is absolutely essential. Because no matter
od things are today, we nevertheless cannot be content
ontinuation of things as they are. We have in our grasp
ity to shape our own destiny . . to challenge the future
e than that, we have the will to make it happen!

The Greyhound Corporation

A company for the eighties.

Technology

It takes a lot of computing power to make
airline reservations or get money from an
automated teller. Its also very lucrative.

Tracking profits

By Anne Field

F| OR ALL THE BALLYHOO about
personal computers, there are
still plenty of organizations
around whose computer needs run
toward the leviathan. Airlines and
banks, for example, both need a com-
bination of high speed, high reliability
and large capacity in their computers;
how else to handle millions of check-
ing transactions a day, or allow thou-
sands of travel agents all over the
country to fill seats on planes jetting
all over the world?

For almost 20 years, such tasks
were handled by large mainframe
computers, and a technique known as
batch processing.

In batch processing, the computer's
memory was updated only on a daily
basis; all transactions made during
the day would be held and then pro-
cessed together after the bank or air-
line closed for business. Not a bad
system, but your information was al-
ways a day old. That's why banks
could only allow you to cash checks
and make withdrawals at your own
branch. Other branches always had
stale account information.

But in 1974 Tandem Corp. decided
that minicomputers could do the
same job as the mainframes the air-
lines and banks were using, but at a
major saving in response time and a
considerable saving in cost. Tandem
linked together separate processors,
each with its own memory. The link
was a device that allowed high-speed
intercommunication from processor
to processor. This device is called a
data bus — no, not a database but a
data bus. The bus transfers data effi-
ciently from one computer to an-
other, and provides a path through
which data can flow in case one of the
machines fails.

In addition to high reliability —
Tandem calls its system a NonStop
system — the data bus also allows you
to update information on a more con-
stant basis. While one computer is
busily handling a transaction, the
other computer's memory is updated
almost instantaneously. This trans-
action tracking system provides
much more up-to-date information,
and has allowed banks to offer such
popular services as automatic teller
machines with a greater precision
and at a lower cost.

When you insert your plastic card
into the bank-teller machine, the cen-
tral computer sends your account file
to the terminal's memory; the termi-
nal performs the transaction, updates
the account file and sends it back to
the central computer. Prior to the data
bus, moving files back and forth was a
slower and more expensive process.
This updated, more rapid version of
batch processing is called transaction
processing.

For six years, Tandem alone ruled
transaction processing and built its
sales to some $300 million today. But
if the minicomputer gave Tandem an
edge over mainframe manufacturers,
the microprocessor chip provided an
equal edge to companies that wanted
to grab a piece of the transaction-pro-
cessing market. With a $50 chip, says
Nicholas Bologna, director of product
marketing of Stratus Computer, Inc.,
of Natick, Mass., a maker of comput-
ers used primarily for transaction pro-
cessing, you can pack the power of
several thousands of dollars' worth of
machinery available in the Seventies.
A single minicomputer now has the
memory of a large mainframe.

That fact helped spawn a couple of
lively new companies: Synapse —
whose management team comes
from places like Data General and

Edited by Stephen Kindel

Bell Labs, and whose venture capital
comes from, among others, Jesse
Aweida of Storage Technology Corp.;
and Stratus — whose founders come
from Data General and Hewlett-
Packard and whose financing comes
from the likes of Olivetti, Ham-
brecht & Quist and General Elec-
tee's Business Development Services
subsidiary.

Both companies take advantage of
the new sophistication of micropro-
cessors. Synapse's approach is prob-
ably more technologically elegant.
The Stratus computer does exactly
what a Tandem NonStop system
does, but with a much smaller and
cheaper piece of equipment than a
minicomputer, though each still has a
memory device.

Synapse took the approach that it
didn't make sense to have separate
processors with separate memories.
The reason, according to Synapse
President Mark Leslie, is that the
greater the number of processors on a
system, the greater the probability
that any given processor won't have
the information you need in its mem-
ory, and that your request will have to
travel out over the bus from one pro-
cessor to another until the requisite
piece of information is found. With
such a system, says Leslie, you may
get a lot of reliability, but your trans-
action speed will slow down as the
number of transactions increases. Re-
member that when you go to your
nearest bank to buy traveler's checks
and the NOW account line is moving,
twice as fast as yours.

Instead of a memory with each pro-
cessor, the Synapse computer has a
single memory and data buses that
can move information back and forth
between memory and processors atl
the blinding rate of 64 million bytes
per second; competitive machines,
says Synapse product marketing man-
ager Kenneth Cohen, have a maxi-
mum bus speed of 26 million bytes
per second.

What the terminals lack in memory
capacity they more than make up in
speed. To provide reliability, Synapse
computers have a spare processor,
which takes over should any given
processor break down. "Our approach
is like having one spare tire to back up
four," says Leslie. Tandem's backup,
the second processor with its own
memory, will operate at a slower

206

FORBES, OCTOBER 11, 1982

)eed if forced to perform transac-
ons alone.

Synapse and Stratus will most prob-
?ly become rich. What about Tan-
=m? There's more than enough busi-
ess for everyone. Omri Serlin of
POM International, a Los Altos, Cal-
. computer research firm, thinks
lat more and more companies will
imp into on-line transaction process-
ig without spoiling it for the current
ltrants. Although Serlin predicts
lat, by 1986, Tandem will have lost
5% of its current market share, rev-
lues will be topping $2 billion, a

sales growth of more than 550% for
Tandem. "The real question," he
says, "is not how much competition
there is, but how fast each company
will be able to grow."

Synapse's Kenneth Cohen happily
agrees: "Transaction processing has
become an inherent part of a com-
pany's ability to get and keep new
customers," he says. "Just look at
automatic-teller machines." Anyone
who has ever waited in a long line at
the bank— as most of us have — would
only add to that: Amen.

Targeting
opportunity

When Congress passed the Coal Mine
Safety and Health Act 13 years ago, it
decreed, among other things, that
each miner working underground
must be equipped with his or her own
emergency oxygen for at least an
hour. Such legislation ordinarily
would have meant a nice windfall for
the companies most involved with
mine safety, principally venerable
Pittsburgh-based Mine Safety Appli-
ances Co. and National Mine Service
Co. Instead, a much smaller firm,
Ocenco Inc., has walked off with
roughly 75% of the contracts award-
ed, and stands to be the major benefi-
ciary of a market for breathers that
will produce $40 million in first-time
sales with the prospect of strong re-
newals down the road.

How come? Says Sam Terry, chief
of the Respirator Section of the gov-
ernment's National Institute for Oc-
cupational Safety and Health:
"Ocenco did its homework." The big
companies, Mine Safety Appliances
and National Mine Service, decided
on a technology that the mine owners
didn't like — a device using potassium
superoxide (KO,), which reacts with
carbon dioxide from a person's breath
to form fresh oxygen.

Trouble is, KO, can become flam-
mable if it mixes with moisture in the
air, a problem that can result from a
leaky container. When KO, units
were first tested, they were consis-
tently unable to stand up to govern-
ment tests. Yet, instead of switching
to a new design, the engineers who
were developing the equipment—and
the United Mine Workers of America,
which was consulted in the process —
all stood steadfastly, perhaps even
stubbornly, by the KO, breathers.

As a consequence, industry insisted
on an exhaustive series of tests. They
were still under way in 1977, when
yet another mine safety bill was
passed. This one authorized the gov-
ernment to require distribution of un-
derground breathing equipment by
the end of 1980.

As the date for compliance ap-
proached, it became obvious that not
enough breathers could be produced
by either Mine Safety Appliances or
National Mine Service to allow mine
owners to comply with the law, even
if the devices passed the tests.

By this time, the government was
demanding the mines enter purchase
orders for the proper number of
breathers by the end of June 1981. But
some mining companies wouldn't

Memories are made of this

Tandem's approach to transaction may not have the data you need,
processing, though faster than batch Synapse, by changing the design to a
processing, has a flaw: the more single memory, with multiple pro-
transactions, the slower the speed, cessors, allows more transactions to
because the CPU you are querying take place simultaneously.

Tandem system

Interprocessor bus

CPU

CPU

Memory

IOP

Memory

IOP

Disk

CPU

Mejnory

IOP

1

r

Disk

Terminal

Terminal

I Request

Retrieved information
Formatted information

IOP: input-output processor
CPU: central processing unit
GPP: general purpose processor

Disk

Synapse system

Shared memory

Disk

Disk

GPP

GPP

GPP

3RBES, OCTOBER 11, 1982

207

- . its"

>

■;lv

fe refuel jets in the air

lev're sitting on the Ground.

hiletl,, .0 0---_-

That's Singer technology.

Everything appears real —the tanker, the instruments,
the air turbulence. But what you're experiencing isn't
real at all.

It's called simulation — a technology in which our
Link Flight Simulation Division has been the leader for
more than 50 years. Today, by combining computers,
lasers, and other electronic systems, Link simulators
are training pilots of sophisticated commercial and
military aircraft, helicopters, even the Space Shuttle.
And helping them fly practice missions without risk to
life, wear and tear on equipment, or burning costly

fuel. Now, Link is developing even more advances
technology for the next generation of aircraft.

Through expanding research and development
electronic-based simulation, guidance, communii
tions, and specialized computer systems, Singer is
ing a new chapter in its corporate history. Togethe
with our unique consumer durables capabilities
throughout the world, this technological base poa
tions us in important growth markets of today an
tomorrow. The Singer Company, 8 Stamford Forui
Stamford, CT 06904.

Bid

Two flawed designs

While the purpose of oxygen breathers is to provide The other unit (right) uses actual bottled oxygen. But

miners a safety margin, both devices have problems, oxygen can leak from valves (1) or (2), and any problem

The K02 device (left) creates oxygen chemically (1), but with the pressure gauge (3) will give a wrong reading in

the K02 can mix with moisture in the air and ignite. If the oxygen cylinder. Too much pressure can cause an

valves (2), (3) are defective, the chemical can also leak, explosion; too little, and no oxygen is delivered.

Some Ocenco competitors and min-
ing industry observers believe Ocenco
can't hold its beachhead for long. Tom
Bethel, a consultant who has followed
the breather issue for over a decade on
behalf of the United Mine Workers)
union, says, "They copied pretty free-
ly from a Polish unit [Poland has one
of the most advanced mine safety pro-
grams in the world). Ocenco didn't
invent it from scratch by any stretch]
of the imagination." Ocenco's com-
petitors complain that government
tests on bottled oxygen units were not
as rigorous as those designed for the
KO, devices, and they point out that
Ocenco has chosen to recall 5,000 to
6,000 devices shipped just this past
spring.

Yet that all may be just sour grapes.
Little Ocenco now dominates a field
in which it had no prior expertise.
Running the regulatory maze may be |
frustrating; but the payoff can sure be|
nice. — A.F.

Technology

take delivery of their KO, breathers.
Sensing a monumental stonewall
abuilding, the Mine Safety & Health
Administration bureaucrats threat-
ened to fine mine owners if they
didn't produce delivery schedules.

But what about Ocenco? Headquar-
tered outside Chicago, its business
had largely been in mine illumination
equipment, but it saw an opportunity
in the decade-long controversy. While
it had never attempted to make a
breathing unit, the company found
out what the mining industry wanted:
a light, easy-to-inspect unit. Bottled
oxygen fit the bill.

Now to find out what the govern-
ment wanted. Ocenco President Pat
Droppeiman and his engineers
trooped down to West Virginia to

meet with NIOSH officials. Their
purpose was to see the testing facili-
ties and ascertain what tests their
model would have to face. Within six
weeks of submitting its model for
testing, Ocenco had passed with
flying colors. And Ocenco got the
NIOSH okay on the first go-around.
With MSHA by then breathing down
the mine owners' necks, 75% of them
immediately ordered the Ocenco
breather.

Ocenco is now churning out 8,000
devices a month, and since the breath-
ers may have to be replaced every
three years or so, Droppeiman fore-
sees a steadily growing market. At
almost $500 per unit, sales of the bot-
tled oxygen devices will give a big
boost to Ocenco's current $30 million
in sales. That figure could rise still
further if, as -Droppeiman predicts, de-
mand for the breathers develops
abroad. "Russia, Poland, most of the
Common Market countries could use
them," he claims.

210

FORBES, OCTOBER 11, 1982

The Bell System is giving
American orchestras a hand.

Personal
Affairs

Edited by William G. Flanagan

Hardware helpers

who buys and

sells
mad-

Fl or anyone
stocks regularly, there is a
dening Catch 22 about market activ-
ity. When the market is quiet, your
broker will tell you more than you
want to know. But when it is hopping,
as it has been of late, you will be lucky
to get through to him just for quotes
on your holdings. You could easily
miss key information — not being in-
formed, for example, that Gulf pulled
out of the Cities Service deal. This is
especially true if you use a discount
broker exclusively.

In this electronic era (see p. 181),
information gaps get plugged very
quickly. Here is a rundown on some
of the various hardware and market
services of interest to the active trader
and stockbroker.

Pocket Quote. This new device is
ideal for the moderate or light
trader who likes to keep fairly
close tabs on his portfolio, but
hates to bug his broker — or
who uses a discount broker
whom he cannot bug. The ma-
chine weighs about 11 ounces
and is about the size of a paper-
back book. Basically, it is an
FM radio receiver with a small
digital display window, akin to
a calculator. You can get
quotes— 15 minutes later than
actual floor trading — on all
stocks, and monitor a portfolio
of 20 selected stocks or options
(NYSE, Amex or o-t-c) by
punching up the symbol. You
can also reprogram the 20
monitored equities as needed.

What's more, the receiver
will give off audible beeps
whenever important news oc-
curs relating to any of your 20
monitored stocks. The screen
will show the stock's symbol
and a flashing light, so you can
call your broker or some other
source immediately to find out
what is happening.

The Pocket Quote, devel-
oped by 37-year-old Fred Par-
sons, can run on batteries or
ordinary AC current, and is
portable. The unit itself costs
$299, plus $19.75 per month.

That's tax deductible, of course, as are
any information aids used in manag-
ing your investments.

At present, Pocket Quote is avail-
able only in the New York City area,
but will soon be available in Chicago,
Los Angeles, Boston, Washington and
Miami. The database for Pocket
Quote is. Telemet America, 401
Wythe St., Alexandria, Va. 22314
(703-548-2042). Note: Since the "car-
rier" is an FM band, the range of the
device is about 50 miles from the cen-
tral transmitter. But you never pay
telephone line charges.

For the more serious investor, or
the broker who works at home, there
is Quotron VuSet. This desktop unit
consists of a keyboard and a terminal
a bit larger than a telephone, which is
wired to Quotron's database. Punch
up any stock listed on the NYSE,
Amex or o-t-c exchanges and you get
the latest sale (or bid and asked), the
daily low, high, net change, volume
and time of the last trade. If any news
item about the stock has run during
the day on either the Dow Jones or
Reuters wire, the time it ran will also
be shown.

VuSet customers can also use the
terminal to get lists of the most active
stocks on the various exchanges, divi-

Pocket Quote inventor Fred Parsons
Get one and stop bugging your broker.

dend and earnings information on in-
dividual issues and other market data.

The basic price of the service is
$260 per month, but there are plenty
of extras, depending upon the services
you want. NYSE last sale runs an ex-
tra $70 per month, for example; Amex
last sale is $12 monthly; options
quotes run another $45. There is also
a one-time $300 installation fee.
Phone charges are included in the Vu-
Set's basic cost. For information con-
tact Quotron Systems, 5454 Beetho-
ven St., Los Angeles, Calif. 90066
(213-827-4600).

Bunker Ramo's Telequote III is an-
other desktop unit, long popular with
brokers. Keyboard and display are
contained in one unit roughly the size
of a manual typewriter. Basic data re-
ceived from exchanges (no 15-minute
delay) includes prices on all Big Board
and Amex stocks, plus commodities,
mutual funds, o-t-c issues and other
market information. Other more so-
phisticated systems are available.

Basic service is $425 per month,
plus exchange fees; the cost is much
higher to distant subscribers. Infor-
mation: Bunker Ramo Information
Systems, 35 Nutmeg Dr., Trumbull,
Conn. 06609 (203-386-2000).
Telerate is a two-piece system con-
sisting of a keyboard and a ter-
minal about the size of most
personal computers. The page-
sized screen has room for
much more information than
either the Telequote or VuSet
systems.

Most Telerate subscribers
use the service primarily for
up-to-date information about
nonstock investments, includ-
ing bonds, government securi-
ties and commercial paper, as
well as current data on inter-
est rates, international money
rates, futures and a host of oth-
er things.

Several financial news ser-
vices are also available
through Telerate, including
the Bond Buyer wire, the Dow
lones Capital Markets Report
and Dow Jones' international
wires. These services can be
watched on a six-line "win-
dow" at the bottom of the Te-
lerate monitor without inter-
fering with the user's ability to
request and receive other in-
formation elsewhere on the
screen.

The base price is $540 a
month, which can be steeply
higher if many optional ser-
vices are used. (These also in-
clude stock and option quotes,

212

FORBES, OCTOBER 11, 1982

America's strongest big bank is not headquartered in Chicago. Of the country s
50 largest banks, AmenTrust is first in the ratio of equity to assets. That s the ki
of management that can make a real difference when you need a strong financial
partner. AmenTrust, Cleveland, Ohio.

Citibank Vice President Jim Wiseman at his Telerate

Monitoring financial news and up-to-the-minute interest rates.

analytical services and S&P's com-
mercial paper ratings.) There is also
an installation fee of several hundred
dollars. Information: Telerate Sys-
tems, One World Trade Center, New
York, N.Y. 10048 (212-938-5200).

DowAlert is not a stock quotation
service but a private radio report from
Dow Jones. Signals are broadcast via
satellite from DowAlert's studio in
Princeton, N.J. (The service is now
available only in Boston, Philadelphia
and New York; it will expand into the
top 40 markets next year or so.)

Each subscriber receives Dow-
Alert's new reports on a receiver
about the size of a telephone. The
customer punches in a four-digit code
for each news category in which he is
interested, and only those radio
broadcasts are aired. Sample categor-
ies: the aerospace industry, inflation,
gaming equipment. At other times
the receiver remains on, but is silent.

When the subscriber is away from
the receiver, DowAlert automatically
tapes all coded news segments that
air. These can be played back, either
on the machine itself or on a standard
cassette tape recorder.

After an initial fee of $150, the
monthly service cost is $50. Informa-
tion: Dow Jones Radio 2, Box 300,
Princeton, N.J. 08540 (800-257-0437).

If you have your own personal com-
puter, you might consider plugging
into the Dow Jones News/Retrieval
Service. A wealth of business-related
and other information is available,
from stock and bond quotes to general
news stories to baseball scores and
weather reports. Over 100 different
kinds of terminals can access the ser-
vice, via telephone lines, including

You could stay healthy

Y'ou have probably heard the story
before, or one like it. A young, suc-
cessful lawyer goes on a skiing trip
with his wife and takes a bad tumble.
He is paralyzed from the waist down.
The doctors say he will never walk
again, and the chances are good that
he will be out of work for a long time,
if not permanently. Yet because he
was new at his firm, he carried no
disability insurance. "A tragedy," you
think to yourself. "But that could nev-
er happen to me. 1 don't ski."

Maybe so. But think again. If you
are 30, your chances of being disabled
are nearly three times greater than
your chances of dying. If you are over
50, they are still nearly double your
chances of dying. Moreover, the dis-
ability could be long term.

Aside from Social Security, which
pays an average of $851 per month to

most standard time-share terminals
and communicating word processors.
The cost ranges from 10 cents to $1.20
a minute. Software packages to "mas-
sage" much of this data are available
from Apple, Atari and others (see Per-
sonal Affairs, Forbes, May 10).

One handy piece of equipment to
access DJ's giant database when you
are away from your own terminal or
computer is the Pocketerm One,
marketed by Charles Schwab & Co.,
the San Francisco-based discount
broker. The Pocketerm, which weighs
less than one pound, allows you to
talk to your own computer by tele-
phone. The terminal has a 16-charac-
ter display across which letters move

a disabled family breadwinner, most
Americans are not covered against
long-term illness. While 84 million
people have some form of disability
insurance, generally through group
policies with their employers, only 21
million of those — about 20% of the
civilian labor force — have coverage
for their income in the event that they
are out of work for one year or longer
due to ill health. Says Benjamin Jones,
president of Monarch Life Insurance,
"Most people think of disability as a
broken arm or leg or appendicitis.
They don't think of heart attacks,
strokes, cancer, chronic arthritis — the
dastardly things that can make it im-
possible to work." More people carry
life insurance than disability. And, as
James Hunt of the National Insurance
Consumer Organization notes, "If
you die, you're gone. If you're dis-
abled, you're still around — and it
costs money."

in familiar ticker fashion, spelling out
information as it is received on the
distant screen. Pocketerm will be
available through computer stores for
about $400. Information: Charles
Schwab &. Co., 1 Second St., San Fran-
cisco, Calif. 94105 (415-546-1000).

If you are a heavy trader with a
discount broker, ask if the firm will
pick up some of the tab for market
information equipment. R.F. Lafferty
in New York, for example, rebates
10% of the monthly commissions
generated by customers who have
such hardware at home, regardless of
type. Source Securities, based in Bos-
ton, has a similar arrangement for its
customers. — Kevin McManus

To take stock of your disability in-
surance, begin with your employer.
Find out exactly what coverage you
carry under your group plan. Ideally,
you will be covered for the entire
length of any disability. But most
long-term disability policies don't
start paying benefits for three to six
months. So you should considei
buying short-term disability insur-
ance on your own. The desirable
amount of coverage, says John Antliff,
senior vice president with Mutual
Benefit Life Insurance, is about 60%
of your predisability gross income.

Remember, if disabled you don't
have work-related, day-to-day ex-
penses. And unless your premiums
are fully paid by your employer, youi
benefits will probably be tax-free.

Under a typical group plan, pro-
vided by employers, you will receive
up to $3,000 a month, starting any-
where from three months to a yeai

214

FORBES, OCTOBER 11, 1982

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Porsche 356

Porsche 911

My work and my hobby are the same: building cars that '
are fun to drive. Building cars that have the best possible
engineering. Building Porsches.

The very first Porsche was the 356.

We had no marketing research to guide us. So it was
designed to my personal specifications: small, light-
weight, with good handling, and the power of a large car.

The idea was to build a racing car for the normal roads.
And, in fact, in 1951, when the 356 was first entered at
Le Mans, it won its class.

The second Porsche was, and still is, the 911.

First produced in 1964, it's forever young. Its engine

One Mai

displacement has been increased from the o
iters to 3 liters. And its output has been raised fro
to 172 hp. Today, on the track, the 911 accelerates
50 mph in 5.8 seconds. Its maximum speed: 135
The 911 and its derivatives have won countle
victories in motor sport, including rallies, hill
and races. The 935 Turbo, for example, won tl
Championship of Makes in 1976, '77, '78, and j
At Porsche, we view the race track as a proving
For on the track, under the stresses, surprises, anc
of competition, the best engineering wins. And
learn from our race cars, we put into our productii

01982 Porsche Audi

' Turbo Can-Am champion (1973) made turbo-

ractical for production cars.

» Turbo Le Mans champion (1976,'77,'81) further

jngine design and aerodynamic efficiency.

I Targa Florio champion (1970) set the handling

or all Porsches, including our new-generation 928.

! has a 4.5-liter, 220-hp, aluminum Porsche V-8

i the track, it accelerates from 0 to 50 mph in 6.0

md it has a maximum speed of 143 mph.

3 also has the Porsche transaxle design which

>alanced braking and improved cornering. And

■rs unprecedented comfort and luxury in a Porsche.

The newest Porsche is the 944.

It has a new 2.5-liter, 143-hp, aluminum Porsche engine,
built at Zuffenhausen. On the track, it accelerates from 0 to 50
mph in 5.9 seconds. And it has a maximum speed of 130 mph.

The 944 also has the Porsche transaxle design, Porsche
handling, and Porsche aerodynamics.

To me, the 944 is more ^^m* ^ — / \
than a new car. It is a new I
and true Porsche.

At Porsche, excellence
is expected.

PORSCHE - AUDI btuttgart

Dr. F. Porsche

Personal

Affairs

after you are disabled. That usually
includes your Social Security benefit,
which is long term. Most group con-
tracts cover you for accident or illness
through age 65.

If you earn considerably more than
$60,000 a year, however, that $3,000-
a-month maximum benefit under
your company's group may hardly be
sufficient. There are a number of ways
you can supplement it. Many profes-
sional associations offer disability
coverage, for one thing.

If you have no professional group to
turn to, you may be able to boost your
coverage through your employer's
carrier. "Monarch knocks 10% off the
individual policy premium for those
members of a group who need addi-
tional insurance," says Jones. "That is
a common practice."

If you are yourself an employer, you
may want to consider buying group
insurance for your company. Short-
term policies generally require a
minimum group of five and long-term
policies a minimum group of ten.

If no group option is available to
you, you can always look into individ-
ual insurance. Such a policy is expen-
sive, but, notes Monarch's Ben Jones,
it has advantages that don't come
with a group plan. "As an individual,
you can get noncancelable insurance
with premiums guaranteed until you
are 65. Group insurance can be can-
celed, and if you leave your employer
you're no longer insured. If you buy
individual coverage, it's yours. You
own it." Individual insurance is avail-
able from several companies, includ-
ing Paul Revere, Provident Life, Mu-
tual Benefit, Monarch Life and Union
Mutual.

The cost of an individual policy de-
pends on a number of variables — but
it's expensive no matter how you slice
it. Generally, individual policies are
about double what a group policy
would cost. A 35-year-old could pur-
chase a guaranteed noncancelable
policy with a three-month waiting pe-
riod and $1,500 in monthly benefits
through retirement for about $600 a
year. A 45-year-old who wants $5,000
in monthly coverage would have to
pay $2,000 a year.

No matter what kind of policy you
buy, keep in mind that the circum-
stances under which you can collect

vary as well. For example, you can be
covered for total disability in your
own profession. If you were a surgeon
and developed incapacitating arthritis
in your hands, you might be able to
collect while continuing to work as a
teacher. Under other contracts, bene-
fits could stop if you were able to
work at.any reasonable occupation.

If you are disabled, don't assume
that your carrier will pay your claim
regardless of the circumstances.
Most claims are paid, of course. But
some disabilities are contested. For
example, "A lot of companies will
tight you on a soft-tissue back in-
jury," says Monarch Life's Ben Jones.
"That's because they are getting
slugged with malingering — people
being laid off and immediately filing
claims." — Alyssa A. Lappen

Waiting for "Hal"

The New Alchemists (Little, Brown,
$15.95) is, to mince no words, the
quickest, most easily understood and
most insightful shortcut to electron-
ics culture that has ever been written.
It presumes you have been living un-
der a technological rock for a genera-
tion, yet brings you up to the state of
the art in 332 jargon-free pages.

Starting with the vacuum tube, au-
thor Dirk Hanson explains enough
about the evolution of the transistor
and the integrated circuit and the mi-
crochip so you can understand what
today's hardware is, what it does, how
it is made and what it is likely to do
tomorrow. And a high school physics
background is all you need to stay
with him.

Less than halfway through the book

The New Alchemists, by Dirk Hanson
A shortcut to electronics culture.

you will find yourself painlessly hi
to the very latest in electronic tech
nology — VLSI (very large scale intej
gration, or, more simply, supei
shrunken, complex circuits the size rJ
your fingernail). Suddenly you realiz
why IBM's order of 64K chips frori
Intel was on the front page of the Wa
street Journal not long ago.

Not that the evolution of the micro
chip and the microprocessor — whicl
are at the heart of every computei
"smart" missile, satellite and Paq
Man game — has been orderly, or eve)
logical. Microchips were, and still are
being produced for applications n<
one has thought of yet. And there i|
still as much art as science in th
production of those microchips.

Nor was the growth of Silicon Val
ley without its human dramas. "Eure
ka"-type discoveries, patent infringe
ments, talent raids, high divorc
rates, fortunes made and lost oven
night, Russian and Japanese espic
nage — all are part of the saga of thl
microchip.

But once Hanson has brought vol
up to speed on what the industry actu
ally does, how it got there and wh<
some of the players are (includin,
some giants you would never expect
such as Exxon) the real story begins
What hath the industry wrought?

Take the communications an'
data-transmission fields, for example
They have literally been blown to bit
by the new technology. The lines blu
between the likes of IBM and AT&T
We live in an era of "compumca
tions." Corporate mastodons, wit!
the imprimatur of the governmeni
are girding for control of the telecom
munications business; the stakes ar
in the hundreds of billions of dollars

Take personal computers. Wha
was a $1 billion market in 1980 wil
be a $21.5 billion one in 1990. (Neve
mind that you may never maste
one — your kids will. One unresolve'
problem: radiation from video displa
terminals. Some unions and healt
specialists maintain that they pose
long-term health hazard.)

Then there is the military and it
use of the new tools. Spy and kille
satellites. "Smart" missiles and weap
on's. Instantaneous, widespread dat
gathering. Supersnoop hardware. Thl
capacity for push-button annihila
tion. "When the Pentagon took to mi
crochips, it opened a frightening Pan
dora's box and it is difficult to sa:
when, or if, the lid will ever be naile
securely shut again," notes Hanson.

There's automation made possibl
by electronics, of course, and its socia
consequences. By 1984, notes Elec
tronic News, "The Japanese govern

218

FORBES, OCTOBER 11, 19821

snt plans to have an unmanned
;talworking plant on line, produc-
l machinery components ranging
>m hydraulic pumps to heavy-duty
insmitters. . . . Every operation, from
sting to final inspection, would be
ndled by flexible automatic sys-
tls and robots, all supervised by a
ntral computer. . . ."
But even with these quanttim
Tips in the capability to do things
icker, cheaper and better, there is
»o the capacity for things to go
ong faster, more easily and much
are catastrophically. A team of 13-
ar-old pranksters managed to cause
:lenet, a communications network,
lose control of one of its computers
: a day. Striking British civil ser-
nts pulled the plug on vital national
mputer systems, shutting down the
>yal Mint, the National Savings Lot-
ry, the collection of taxes and pay to
jrkers. A talented computer analyst
is charged with using his computer
steal $10 million from Security Pa-
ic National Bank and $50 million
>m Union Bank in California.
Scarier still, in 1979 a data tape
>m a war game was accidentally fed
to some military computers, indi-
ting that a Soviet sub off the West
)ast had launched a missile attack,
filters were scrambled, command
sts alerted and missile silos were
adied before the error was discov-
sd. In 1980 there were two more
nilar false alarms.
No, for all their wonder, electronic
achines are still subject to human
e and misuse, besides having their
ra frightening, built-in glitches,
osmic rays can foul up even your
ime computer, causing so-called
ft fails, and atmospheric nuclear
asts can wipe out entire telecom-
unications systems.)
The day of "Hal" — the computer
ith artificial intelligence that
arred in 2001. A Space Odyssey — is not
cely to be a reality by that date. As
ie programmer in the field put it, "It
kes a page of instructions to tell the
achine that when Mary had a little
mb, she didn't have it for lunch."
But the world of electronics is too
uch with us, late and soon, to be
nored. Read Hanson's book for
>eners.— W.G.F.

Board and room

jlveryone wants to serve on a board
J of directors, though not too many
:ople know what it's all about," says
'illiam H. Chisholm, president and
under of Boardroom Consultants,
hich advises companies on how to
in and staff their boards.

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Personal

Affairs

Small wonder there is no shortage
of applicants. For no arena of corpo-
rate activity is as prestigious, as secre-
tive or as powerful as the boardroom.

But what is involved in serving on a
board? How are directors chosen?
How are boards made up? What is the
compensation? The potential liabil-
ity? What's expected of directors?

While virtually all companies are
legally managed under the direction
of a board— which represents owners
or stockholders, not management —
virtually no two are alike in composi-
tion, number, amount of real power,
accountability or disposition. "There
is no such thing as an ideal board,"
says Chisholm, who was once chair-
man of Oxford Paper Co. and has
served on the boards of several major
corporations as well as on small com-
pany and nonprofit boards.

As Chisholm sees it, there are basi-
cally two types of boards: active and
passive. For even today, with the in-
creasing number of bankruptcies,
takeovers and generally tough times
for a lot of corporate managers, there
are still too many rubber-stamp
boards. Their directors are expected
merely to approve the chairman's ac-
tions, no questions asked. Serving on
such a board, notes Chisholm and
others, is an invitation to stockholder
suits if the company goes bankrupt.

If you are asked to serve on a board,
here are some other important points
worth considering, according to Chis-
holm, the National Association of
Corporate Directors, and managers of
executive search firms who recruit di-

rectors as well as executives:

• The board's structure. If the

company has sales under $50 million
a year, it will generally have five di-
rectors and will meet four to six times
a year. Sales of SI 00 million -to $150
million means seven directors and six
to eight meetings. Companies with
sales of. $500 million to $1 billion
have nine or ten directors and eight to
ten meetings annually. Bilhon-dollar-
plus companies can have from 13 to
15 directors and meet 10 to 12 times
annually.

In recent years there has been a
trend toward having more outside di-
rectors and fewer officers of the corpo-
ration, a move widely applauded by
the SEC and most attentive stock-
holders. The typical board of a large
corporation, according to a recent sur-
vey by executive recruiters Korn/
Ferry International, will have four in-
side and nine outside directors. And
the company's own bankers, invest-
ment bankers and lawyers are less
commonly found on boards. The po-
tential for conflicts of interest is too
strong. Senior executives of other cor-
porations and retired executives of
other companies comprise the bulk of
outside directors, but large gains are
being made by academicians, former
government officials and women. Six-
ty-two percent of larger industrial
companies and 75% of banks and fi-
nancial institutions now have women
directors. The days of a pretty face, or
a minority member serving only as a
token, are over.

• Compensation. According to
Korn/Ferry, the average director's
compensation in 1981 was $15,660, in
both annual and per-meeting fees.
That does not include travel or other
special expenses for serving on board
committees. (The fees paid for com-
mittee meetings average about $500
per session.)

In addition, outside directors are

now commonly offered such benefits
as accident, medical and life insun
ance (especially valuable for retiree)
board members). Director's liability
insurance — to protect against stock<
holder lawsuits — is also routinely,
provided, of course. And almost hall
of the 606 companies that responded
to the Korn/Ferry survey permit direc-
tors to defer collecting their fees until
retirement.

• Practices and policies. An out-j
side director can expect to spend an
average of 1 23 hours a year on board-
related matters. That breaks down
into 28 hours for review and prepara-
tion, 45 hours for travel and 50 hours
for attendance at board and commit-
tee meetings.

There is often a mandatory retire-
ment age for directors: typically 70 for
outsiders, an average of 68 for insiders.

Fifty-one percent of companies now
require all board members to sign the
Annual Report Form 10-K. That's thei
one that can get you into trouble if
anything is awry with the company
and there are lawsuits later.

• The role of the board. As you|
might expect, the dominant concern of I
directors is financial results, now more;
than ever. There is also greater concern
than in the past over such issues as|
managerial succession and day-to-day
operations. There is relatively littlel
concern nowadays over corporate eth-
ics and government relations.

• How directors are chosen. The
old-boy network is alive and well in
the boardroom. Almost 80% of out-
side directors are already known to
the chairman and other board mem-
bers. "Chemistry is extremely impor-
tant on a board," notes Chisholm.

The role of the nominating com-
mittee is growing, however, and 55%
of boards use them as a means of
identifying and selecting board mem-
bers, though the chairman almost al-
ways has veto power.

220

FORBES, OCTOBER 11, 1982

There's little doubt that the gold price these days looks
ractive.

Thus it is not surprising to see a renewed interest in the
ital on the part of some investors.
But what is also not surprising is that these investors
ght be overlooking something as they once again
)ve into gold.

In the past few years, many have bought gold for the
ort term only— buying it low and selling at a higher
ce in a few months or so, or maybe a few years or so.
id, if it didn't perform right away they dumped it.
This has sometimes been a good tactic, but it also
lores the classic reason to own gold.
3old is not like other investments. It is not like stocks or
nds. It is not like collectibles, it is not like options, it is
t like real estate. It is not even like silver, which is
ailable in larger quantities, and is also stockpiled for
vitary and industrial uses.
Gold is man's classic hedge— whether
ainst inflation, a stock market crash, a
valuation, a bank failure— against al-
)st any monetary crisis. It has been
s way historically, the hedge
at moves independently of pa-
r investments. And the wise
'estor uses it as such with
aybe10to15 percent of his long

term portfolio or savings in gold. It is a kind of capital
insurance. You, after all, insure your life, your home, your
car- why not insure your portfolio^

Once you've made a commitment to gold, you'll find
there's one coin that really stands out: The Krugerrand.

Noothergoldcoin hassomanyofthegood investment
attributes of the South African Krugerrand: Its four sizes
offer exactly one ounce, 1/2 ounce, 1/4 ounce, and 1/10
ounce, of pure gold. So you can easily relate them to the
daily gold-ounce price. What's more, there's been just
enough extra metal added to them to make them hard
enough to resist scratching and denting.

Sold in volume and therefore at a low premium over the
price of gold, you buy Krugerrands at many local coin
dealers, precious metals companies and at some se-
lected banks and brokerage firms.

And you now know the real reason to buy them.

For information and dealers near you call 800-526-
7843Ext.0008(in New Jersey, 800-522-4503) orsendthe

KRUGERRAND GOLD COINS

The world's best way to own gold.

© 1982 International Gold Corporation Ltd

Personal

Affairs

Possibly because of the slump that
many corporations are in, the need to
tend to one's own knitting first and the
threats of liability, more prospective
candidates than ever are turning down
invitations to sit on boards. About one
in five declines. Insurance companies
had the highest turn-down rate in
1981, with 35% saying that prospec-
tive directors had nixed their offers.

If you want to serve on a board, the
first thing to do, obviously, is to
spread the word, not only among
board chairmen and directors you
know, but also with specialists who
sometimes hunt for directors. You
can drop a resume off and fill out a
questionnaire at Boardroom Consul-
tants (230 Park Ave., New York, N.Y.
10169) and the National Association
of Corporate Directors, one of the
American Management Associations
(440 First St. NW, Washington, D.C.
20001). Several executive recruiting
firms also find directors for their
corporate clients from time to time.
Among them are Robert L. Gette,
Haley Associates, Heidrick & Strug-
gles, Korn/Ferry International, Nor-
deman Grimm and Spencer Stuart &
Associates. — W.G.F.

Loose ends

Going on a cruise is a great idea,
but picking a ship, the right
cruise line and destination can be so
maddening as to make you want to
forget the whole thing. You could
spend the entire fall and winter go-
ing blind at your travel agency look-
ing through glittering brochures that
tell you little more than that the
water is green and/or blue and what
the dates of departure are. Now 28
major cruise lines, wisely banded
together in their own trade associ-
ation, have compiled a concise, in-
formative guide to cruises that will
save you hours in the winnowing
process.

To bolster sales this year, cruise
lines are offering a number of incen-
tives, including free air transportation
to ports of departure, cash rebates for
early bookers, fiat rates for both inside
and outside cabins, discounts for third
and fourth persons sharing a cabin
with two full-fare passengers, special

The Sun Lines' cruise ship Stella Solaris
A Love Boat cruise in your future.

standby fares and single-passenger
discounts. For a rundown on cruises
this fall and winter, including costs
and any special incentives, as well as
some tips on taking a cruise, send a
9x1 2-inch envelope and $2 to cover
postage and handling to the Cruise
Lines International Association at ei-
ther Pier 35, Suite 200, San Francisco,
Calif. 94133, or 1 7 Battery Place, Suite
631, New York, N.Y. 10004.

Picking a mutual fund isn't easy. Like
many another financial writer who is
often asked to choose one, I first cite
Forbes' own annual mutual fund sur-
vey, published this year on Aug. 30.
Then comes the second question: How
can I contact funds for more informa-
tion? Well, there are now three mother
lodes for such data.

First, there is the Investment Com-
pany Institute, the trade association for
most of the nation's mutual funds.
Upon request, the institute will mail
you a complete list of member funds,
including addresses, toll-free tele-
phone numbers and a designation as to
what type of fund each is. The institute
breaks them down into ten categories:
aggressive growth; balanced; bond;
growth; growth and income; income,-
limited maturity municipal bond; mu-
nicipal bond; money market; and op-
tions. The institute will also furnish
you with separate lists of funds ar-
ranged by category. Address: 1 775 K St.
NW, Washington, D.C. 20006.

The No-Load Mutual Fund Associ-
ation publishes a directory each year

that gives thumbnail descriptions of
funds, in addition to addresses and
phone numbers. Over 50,000 copies
are sold each year. Cost is $1 to cover
postage and handling. Address: Valley
Forge Colony Building, Valley Forge,
Penna. 19481.

A more comprehensive (and expen-
sive) rundown can be found in The\
Handbook for No-Load Fund Investors,
published by the editors of the No-
Load Fund Investor advisory service.
It includes a lot of solid how-to ad- 1
vice that even seasoned investors will
find useful. Cost: $39, which includes
four quarterly newsletters. Address:
P.O. Box 283, Hastings-on-Hudson,
N.Y. 10706.

Financial aid for your child's college
education is harder to get than it was
even a couple of years ago. One good
source of information on the subject
is "Financing Student Loans," a re-
port published by the College Board.
The report, which examines gaps in
available student aid and makes sug-
gestions on filling them, is available
for -$4. Write to the College Board,
1717 Massachusetts Ave. NW, Wash-
ington, D.C. 20036. Another good
booklet on the subject is "Don't Miss
Out," an annual guide to scholarships
and loans. Two key suggestions by
author Bob Leider: Be thoroughly fa-
miliar with federal aid programs and
apply early. For a copy send $3 to
Octameron Press, P.O. Box 3437, Al-
exandria, Va. 22302.

222

FORBES, OCTOBER 11, 1982

A Rolls-Royce is one of the
few investments you can control
with your own hands*

A Silver Spur is a rare commodity at
your command.

Take the wheel, turn the key and
listen. The V-8 engine is a whisper.

Step on the accelerator and hit the
speed limit in seconds. The power is
overwhelming and road noises and
vibrations are imperceptible.

Head for a familiar rough road.
The independent front and rear
suspensions make you wonder if it
has been repaved.

Zigzag through a countryside.
The aerodynamic shape lets you slice
through crosswinds and sail around
corners with ease.

Come to a stop from any speed.
The independent braking systems
bring you to a swift halt without a
skid or a swerve.

Drive from upstate New York to
downtown Phoenix in the middle of
February. The unique Rolls-Royce

twin-level automatic air-conditioning
maintains whatever temperatures you
have set to cool your head and warm
your feet.

Revel in the glory of the ride and
the comforts of the car. Every detail
from the electronic conveniences to
the personal craftsmanship is pure
Rolls-Royce.

And like every Rolls-Royce you have
ever seen, a new Silver Spur is built
by hand, built to last and built to
appreciate in value long after time
catches up with ordinary cars.

More than half the cars in
Rolls-Royce history are still on the
road. Many of them are worth more
titan they were years ago. And if you
have dreamed of owning a Rolls™
someday, today is the day to either
purchase or lease a Silver Spur.

All that is missing in this
masterpiece is you.

For the Rolls-Rovce Authorized Dealership nearest vou, contact
Rolls-Royce Motors Inc. , Lyndhurst, New Jersey 07071. '( 201 ) 460-7800.
The names "Rolls-Royce" and "Silver Spur" and the mascot, badge and radiator grille are
registered trademarks, as are die Bentlcy name, mascot and badge.

© Rolls-Rovce Motors Inc 1982

A Rolls-Royce is a Rolls-Royce.

Faces

Behind The Figures

Edited by Barbara Ettorre

Pumping plastic

Arco dropped its gasoline credit card
in April. Shell last month began a
media blitz to encourage present
Shell cardholders to use the card
more often and to attract new ones.
And just to confuse matters, the
likes of Exxon, Gulf and Phillips re-
cently imposed a 3% credit card fee
on their dealers, many of whom are
passing it on at the pump.

Now comes Getty with another
wrinkle. As of Nov. 1, it will junk its
own credit card operation — but en-
courage its dealers to accept Visa and

Differ hopes to improve Getty's credit
card business at the pump, today cur-
rently only 13% of its total gas rev-
enues compared with a 20% industry
average. Only 300,000 Getty cards are
active, he notes, whereas "mdlions of
bank cards are in the hands of people
driving cars." Moreover, Differ be-
lieves bank cards could spawn a far
greater increase in volume than could
a price cut of only a few cents at the
4,600 Getty, Skelly and Mohawk sta-
tions pumping his gas nationwide.

Differ, 59, a 27-year veteran of the
oil industry who has run Getty's mar-
keting since 1966, says his division
had pondered the credit card problem
for two years before making tbe move
to Visa and MasterCard. He flatly de-
nies that it's an intermediate step on
the way to discontinuing credit cards
altogether. "We were aware of what
the other companies were announc-
ing," he says. "We want to do some-
thing a little different, something to
help our dealers." — Michael Moynihan

Thomas Differ, senior rice president of Getty Oil Co.

Only 300,000 active Getty cards out there, but millions of bank cards.

MasterCard bank credit cards. Arco
figured it would save $73 million a
year by dropping its card and chose to
pass it along to customers in lower gas
prices. Getty, instead, will pass along
a good chunk of its savings (it won't
say how much) to its dealers, by pay-
ing the bank card a commission of 3%
or less on gasoline and oil sales. (The
dealers themselves will pay the com-
mission on repair and parts sales.)

The idea, says Thomas Differ, a
Getty senior vice president and the
plan's creator, is to cut costs without
cutting credit lines. "It is a lot differ-
ent, now with gasoline generally
more than a dollar a gallon, as com-
pared to the days when it was under
20 cents," he says.

Why stick with credit cards at all?
With the use of Visa and MasterCard,

Oyez, oyez . . .

One of the most important copyright
cases in decades, if not of all time —
Sony Corp. of America v. Universal City
Studios, Inc. — is scheduled to be heard
next spring by the U.S. Supreme
Court. Legal bills on each side are
already well past $1 million since the
battle was joined six years ago, and
two Los Angeles attorneys are now
readying final arguments that will de-
cide the vexing issue at the case's
core — how to strike a balance be-
tween the rights of ownership and the
rights of use.

Both Stephen Kroft, Universal's
chief counsel, and Dean Dunlavey,
Sony's lead attorney, have been with
the case since it began in 1976, when

Attorney Stephen Kroft for I nirersal
Seeking damages at the root. . . .

Universal, to protect the value of its
film library, went into a federal court
seeking to halt the sales of Sony Beta-
max videocassette recorders. The
court refused to do so. Universal ap-
pealed, and in 1981 the lower courl
was reversed. Meanwhile, the U.S.
Congress, grappling cautiously with
the conflicting equities involved, has
significantly updated copyright stat-
utes but has left considerable room foi
judicial interpretation.

Stephen Kroft, 38, a Stanford law
graduate and a partner at Rosenfeld,
Meyer &. Susman, seems clearly eagei
to avoid casting his client, Universal,
in the role of public enemy. "We're not
suing individuals," he says. "We're su-
ing manufacturers. We want to get out
damages at the root of the problem."

Damages? Quite the contrary, Dean
Dunlavey, 57, a Harvard law graduate
and partner at Gibson, Dunn &
Crutcher, will argue for Sony. "Uni-
versal makes money renting or selling
its cassettes to Betamax owners," he
says. "The Betamax recorder has
probably increased Universal's profits
far more than those of its maker."

Anyone with a taste for legal subtle-
ties will have a high old time as Kroft
and Dunlavey square off at each other
and the learned justices throw zingers
at both of them from the Supreme
Court bench. The new copyright act
that became law in 1978, for example,
ticked off five exclusive rights of
copyright owners, including the right
to "reproduce or authorize the repro-
duction" of a copyrighted work, such
as one of Universal's movies. But un-
like other rights, which clearly apply
only to public use, the new act makes
no distinction between public and pri-
vate use. Should home video, then, be,
included or exempted? All sorts of
complications follow, like what is
"fair use" and what is "privacy"?

More than the long-term value ol

226

FORBES, OCTOBER 11, 1982

III 71

Wtomey Dean Dunlaveyfor Sony
. . What damages?

Jniversal's huge 14,000-plus film li-
brary, or the future sales of home
/CRs and tapes (now roughly a $1
)illion market), is at stake. Among
;everal bills now pending in Con-
press is one that would slap a $50
oyalty on the sale of each VCR and
51 on the sale of blank tapes — the
)roceeds of which would go into a
dtty to reimburse copyright owners.
Dean Dunlavey admits he does a lit-
:le private home-videotaping him-
self.— Roger Neal

These seats are taken

3an American World Airways flight
[10, which leaves JFK International
or Rome every day at 6:45 p.m. and
■eturns as flight 111 the next day, is
/irtually a private New York-to-
ilome shuttle for Mario Perillo, 56,
^resident and owner of Pearl River,
SLY. -based Perillo Tours. Since 1974,
»vhen his firm started buying air tick-

ets exclusively from Pan Am, Perillo
estimates that his firm has flown
some 90,000 people to Italy and back.
It's the only destination Perillo
serves. This year alone, in the season
running from April to October, Perillo
says he has flown 20,000 travelers on
his 15-day package tours — a 15% in-
crease over 1981. Of Pan Am's esti-
mated 146,000 round-trip passengers
to Italy annually, Perillo Tours ac-
counts for about 15%. His firm is now
Pan Am's single biggest customer.

The Perillo family has been selling
all-inclusive package tours to Italy
since 1945, when Perillo's father, Jo-
seph, started the operation, and even
before Pan Am began to fly 377 Strato-
cruisers to Rome in one-way trips of
17 hours. Perillo used to sell charter
flights until he negotiated a deal with

Called to account

Firestone Tire &. Rubber Co. reported
a $79 million profit on sales of $4.3
billion in 1981. But under inflation-
accounting guidelines established by
the Financial Accounting Standards
Board, Firestone had a loss of $112
million last year.

Which figure is right? Neither, says
Victor Brown, currently Firestone's
chief financial officer and soon to be-
come a full-time member of the FASB
itself. "Traditional accounting rules
need supplementing these days," he
says. "But the inflation-adjusted
numbers are not the whole truth ei-
ther. They show what would be ob-
tained under certain conditions. They
were drawn up in a spirit of experi-
ment." The inflation accounting rule

Victor Brown of Firestone Tire & Rubber Co.

A "spirit of experiment" to find "the whole truth.'

Mario Perillo of Perillo Tours
Thank God for Mario.

Pan Am to buy regular flights at a
discount — a big draw for a budget-
minded traveler. A normal economy-
class round trip to Italy now runs
$1,200 on Pan Am. Perillo's $1,500
package includes air fare and ground
transfers, meals, hotels and sightsee-
ing for two weeks. His sales reached
$30 million this year.

Perillo is sanguine about Pan Am's
problems (seep. 124). "What we hear
from the soldiers of the organiza-
tion— the agents, clerks and so
forth — is that they think they are over
the hump," he says. "They seem en-
thusiastic, and that gives us a warm
feeling." So sure is he of the continu-
ing lure of Italy and the ability of Pan
Am to get American travelers there
that Perillo has already signed up for
23,000 places with the carrier for
1983. — Aaron Bernstein

on depreciation, for instance, assumes
that a company would replace its ex-
isting plant with exactly the same
facilities. "Technology," notes
Brown, "has moved on and demand
has changed. Firestone may want to
do something different the next
time." A lot of executives in smoke-
stack businesses would agree.

Brown, 53, a graduate of the Wharton
School of Business, came to Firestone
less than a year ago from Standard Oil
of Indiana. He will be regarded as indus-
try's spokesman on the seven-member
FASB board. His colleagues on the
Stamford, Conn. -based board are
drawn from public accounting prac-
tice, government and academic life.

Money is hardly the attraction for
Brown at the FASB. He will receive
$185,000 a year — not a pittance, cer-
tainly, but it simply matches his cur-
rent salary at Firestone. There are no

FORBES, OCTOBER 11, 1982

227

Faces

Behind the Figures

bonuses, such as the $90,000 he re-
ceived this year based on Firestone's
profits — before inflation adjustments,
of course. He denies a clash with Fire-
stone CEO John Nevin and adds: "The
new job is a chance to make a differ-
ent kind of contribution, somewhat
akin to public service."

Known tor working long hours,
Brown will need his stamina for his
new job. Each FASB member is ex-
pected to keep tabs on all aspects of
the board's work. A new standard may
be argued about for years and could
draw as much as 8,000 pages of com-
ment from the public before it is
adopted. Members are expected to
read it all. — Eamonn Fingleton

Follow the bouncing ball

"We used to kid in the industry that
the two most important typewriters
in the world were IBM and IBM used,"
says Thomas O'Reilly, president of
Juki Office Machine Corp. For IBM's
typewriter competitors, that joke was
no laughing matter. Of the estimated
10 million electric typewriters (not
including portables) now in use in
U.S. offices, the IBM Selectric, first
introduced in 1961, has 85% of the SI
billion market. But O'Reilly thinks he
has something — a typewriter that
looks and works like a Selectric, rotat-
ing ball and all, at half the price.

Others may be convinced that elec-
tronic word processors have doomed
the electromechanical technology of
the Selectric, whose basic design is 20
years old. Not O'Reilly. After 30 years
of selling typewriters for Remington,
Olympia and Adler, he became con-
vinced that people really wanted not a
new technology, but a Selectric sell-
ing for around $400 rather than at
IBM's starting price of $995.

O'Reilly spent seven years and $1
million to build a prototype. He and
two associates raised the money from
bank loans and O'Reilly's typewriter
distributorship. He took the proto-
type to Japan, to Tokyo Juki (1981
sales, $450 million), the world's larg-
est maker of industrial sewing ma-
chines. Juki had already been manu-
facturing Olivettis. Now, it has man-
ufacturing and marketing rights for
O'Reilly's machine — called the Sier-
ra— paying O'Reilly an undisclosed

Juki Office Machine's Thomas O'Reilly
An old technology, but half-price.

royalty for each machine. For openers,
Juki will offer a $400 model to pick off
individuals and small businesses pin-
ing for a used IBM Selectric. To that
market segment O'Reilly expects to
sell 60,000 typewriters by year-end.
By then O'Reilly hopes to start luring
bigger office customers with a $595
Sierra to go against IBM's Selectric II
($995). By the end of 1983, O'Reilly
hopes to be selling 350,000 Sierras
shipped from the $16 million plant
Juki has built in Hiroshima.

No rumblings from IBM so far.
In fact, as president of Juki Office
Machine, O'Reilly signed a market-
ing agreement with IBM recently,
making him an authorized U.S.
distributor of the IBM typing
balls —Kathleen K. Wiegner

Never mind Schlag
and Strauss

Add Austria to the list of European
countries seeking U.S. high-technolo-
gy companies to invest within their
borders. "We have been losing oppor-
tunities because we have not been
promoting ourselves," said Deputy Fi-
nance Minister Hans Seidel during a

recent mission to the U.S. to sprcaQ
the good word. His talks with Ameri'
can executives have focused not on
pastries and scenery but on Austria'^
work force and its already solid repu "
tation in precision engineering.

"Including fringe benefits, oul
skilled workers cost 30% to 40% less
than those in West Germany or Swit-*
zerland and are just as good," says
Seidel, who notes that almost one in
three manufacturing jobs in Austria is
now supplied by a non-Austrian com-
pany. It was the work force, he says,
that motivated GM in 1979 to put a
$450 million engine plant near Vien-
na— just 30 miles from the Eastern
bloc. And, it was the work force that
led to Europe's first 64K RAM chips
being made in Deutschlandsberg,
Austria by Siemens, the big German
concern and the largest foreign em-
ployer in Austria.

Besides the workers, what can Aus-
tria offer? Tariff-free agreements withi
the EEC and membership in the Euro-
pean Free Trade Association, for one
thing — a total Western European mar-
ket of 370 million people. Moreover,
Austria pays up to 30% of a new in-
vestment in grants and subsidized'
loans, with training grants on top oft
that. On the bargaining table, too, is]
an unusual no-loss leasing scheme,
under which an Austrian state agency
covers the first moneylosmg years for
small companies (under 50 employ-
ees) on the condition that the foreign
firm promises to stay for an additional
number of years (and gets an option to
buy the facility at a bargain).

Other special incentives are avail-
able to companies planning to export
a lot of goods. The chief reason for
that sweetener is the chronic deficits
in Austria's balance of payments — the
result of having to import 70% of its
energy needs. In most other respects,
says Seidel, 59, formerly the head of
the Austrian Institute of Economic

Austrian Deputy Finance Minister Hans Seidel
"We don't like hire-and-Jire."

228

FORBES, OCTOBER 11, 1982

IF THE WALL STREET JOURNAL DIDN'T ARRIVE SO EARLY,

I'D GET MORE SLEEP.

JOSEPH ETURLEY, PRESIDENT, THE GILLETTE COMPANY

"Every morning I make sure I get to work as early as The Wall Street Journal does,
lat way, I'm sure to have time to read it before my first meeting, in fact, most other
sy executives I know also consider The Journal a necessary part of their business day.

"You see, The Journal is the source of business information. Information that I
solutely need to help me make decisions. In my experience it's by far the most quoted,
nembered and thoroughly used publication available.

"When I read The Journal, I know I'm not going to miss anything important in busi-
ss. So even though I give up some sleep mr 111 AM Of DECT IMIDUAI
iding it, I wouldn't dream of starting IHE WALL dllfEEl JUUffNM.
/ day without The Wall Street Journal!' M the business news you need. When you need it.

•scribe today, call 800-345-8540 except Hawaii or Alaska. PA 800-662-5180. Or write: 200 Burnett Rd.,Chicopee, MA 01021.

One of the growth technologies of the future is computer-
ized image processing.

Ifs a vital technological thrust. More and more, industry,
medicine, science and defense are making use of huge num-
bers of images gained from many sources— radar, infrared,
acoustic, television cameras.

Until recently, most images have been analyzed or
compared only by specialists. But now, computers are being
taught to "read/understand" and make decisions about
torrents of images that would otherwise swamp the human
eye and brain.

'The tanks just moved!

The orange lines, which are offset
from the original image of the
tank, are part of the recognition
technique that shows the
tank has moved.

This can becritical inputto
a threatened commander, and
he needs it almost instantly.

A reconnaissance aircraft or
satellite carrying a sensor such
as a television camera or radar
would make the discovery. The
sensor's images then are con-
verted into electrical signals
and sent to a computer, where
they are stored as arrays of
numbers. Computer programs
manipulate the numbers until
the tanks are "recognized." An
enhanced image showing the
tanks can be reconstructed and
displayed for the commander.

But a computer, unlike a human being, has to beg)
mathematical description in advance to know what]
looks like. The sensor, covering everything it sees, se
a staggering volume of signals. So the computer mua
"trained" to eliminate unimportant images and conq
on significant ones. . . for example, to look for the tail
were spotted yesterday to see if they moved.

This is not just laboratory theory. Lockheed teams j
now are training computers in this automated image
standing, or "computer vision!'

How big is the wheat crop?

Identifying wheat from corn from sagebrush orotl1
growth is another triumph of computerized image pre

The photo here came from a Landsat satel I ite. The
color, assigned by a computer, indicates wheat. Bare
ground, plowed ground, and stubble are in shades of
Working with NASA, Lockheed scientists, engineers
mathematicians have developed techniques to proa
numbers of images through computers, which they r
"taught" to recognize various crops and their conditi

1

10

30 50 7

0

90

1 30 1

m

4 -

pn eye, a tank looks like the picture in Frame I. But to a computer, the picture is simply a large array of numbers stored in its memory. It has to
j data to "recognize" the tank. In Frame 2, it analyzes light intensities of the picture. In Frame 3, it manipulates its stored data to identify edges of
d in Frame 4, it has eliminated background and now has abstract edges and shapes from which it can proceed to recognize the tank.

, this valuable technology enables Lockheed to
le the size of world crops.

jating by images.

[o you navigate an unmanned vehicle when an

(jidance system is too expensive?

ay is with an image-based system being developed

beed.

|iuman pilot, the computerized system will "read"
of cues, like woods, ridges, and hills. It will recog-
le, for instance, even when iced over or shrunken
it. With this input, along with other data such as
and compass readings, the computer will weigh
jjrmation and initiate accurate navigational orders,
[g human eyes that can tell a lake from a hill, the
Fwill rely on mathematical descriptions of topo-
?atures. These descriptions, involving such features
pr brightness contrasts, will "teach" the computer to
(react correctly to the three-dimensional world.

nating X-ray inspection.

Lng subtle differences or flaws shown by X-ray
bhs has traditionally been a slow, tiring job for
pecialists, particularly in industry.
Lv Lockheed has developed an Automatic X-ray
In System — AXIS —that examines X-rays by the thou-
kreat speed. It converts X-ray images into numbers and
p the results against established norms, thus isolating
[Vith quick, tireless repeatability, it makes accept/
:isions and records the data on magnetic tape.

First developed for the
defense industry, AXIS
can be easily adapted
to medicine and other
industries. It will be
increasingly important
in applications where
large numbers of images
or articles must be
checked fast for subtle,
critical variations.

Arrow points to a defect revealed in an AXIS
X-ray image of an artillery shell casing.

Image processing: the future.

If a system of sensors and computers can recognize
instantly the movement of tanks or scan the ground below to
guide an unmanned vehicle, cannot more advanced systems
be developed to guide surgeons as they operate? Cannot
systems such as AXIS lead to immense improvement in the
quality of American products?

Great as have been the advances in image processing, it is
a field only now coming into its own, and Lockheed knows
how to develop this emerging technology.

^^Lockheed

For more information about Lockheed, write for the
1981 Annual Report Highlights to A.C. Melrose,
Lockheed Corporation, P.O. Box 551, Burbank, CA 91520.

Experience and scope keep A&J
pre-eminent in the energy field.

For over half a century, the innovative

For over half a century, the innovative
leader in energy insurance brokerage has
been Alexander & Alexander.

Early on, we pioneered new insurance
coverages for the developing coal and gas
businesses. Played a catalytic role in help-
ing to create the insurance capacity needed
to cover incredibly high-cost energy nsks.
And met the burgeoning and increasingly
complex global and domestic needs of de-
manding oil clients, from integrated multi-
nationals to smaller independents.

Today, our National Energy Division
keeps A&A the foremost energy insurance
broker. This crack team of technical experts
offers you the most comprehensive services
available, with m-depth expenence in every
energy area. Oil. Gas. Coal. Utilities. Nuclear
power. Shale oil. Tar sands. Synthetic fuels,
solar and other alternative energy sources.
Pipelines. Marine. Storage and distribution.
And contractor and supplier services.

Energy services
pinpointed to client needs.

Because members of our National
Energy Division are strategically located at
key energy centers across the country, it is
easy for local offices to draw upon the
expertise you need, no matter what energy
area you specialize in. Together, we'll help
analyze, design and service custom-made,
cost-efficient risk management programs.

In energy, as in other industries, we
view financial risk through the client's eyes.

We think a big reason A&A has
become one of the largest and most trusted
insurance brokers worldwide is that we
work the same way with every client. From
the client's point of view.

Alexander
gAjexander

From the client's point of view.

Faces

Behind the Figures

;search, and a professor at the Uni-
;'sity of Vienna, Austria is in good
;ipe, with inflation at 5.5% in 1981
d declining, unemployment at 3%
d the GNP growing at 2%.
ieidel has one caution, though, for
b U.S. companies he is wooing,
ice WWII, he explains, there has
en a "social partnership" between
; trade unions and employers, re-
tting in a great emphasis on what a
mpany owes its labor force when
siness is tough. "At times, employ-
s have to keep workers on, rather
an lay them off," he says. "We don't
te hire-and-fire." — Howard Banks

A "black box" for gems

[re years ago Jacques Voorhees de-
fied he wanted to computerize the
^hly fragmented diamond indus-
r — where traditionally prices are set
sight and contacts are made by
)rd-of-mouth. Diamond dealers told
m he was crazy.

Today, some of those same skeptics
ibscribe to Polygon Network,
rmed several months ago as a joint
nture between Voorhees' small
ew York company, Polygon DTN
c, and AutEx Systems, a division of
:rox. For a monthly fee of $850, a

canes Voorhees of Polygon DTN
olishing rough edges.

subscriber receives unlimited access
to Polygon's national computer net-
work, which functions much like
NASDAQ's over-the-counter trading
system. Members can sell their offer-
ings on the computer, while buyers
can scan the listings to see if a desired
stone is available. If the subscriber
chooses, he can clear a sale through
Polygon, for a fee of $100.

Voorhees, a 30-year-old University
of Texas graduate who took a dia-
mond-grading course and started his
venture with $10,000 borrowed from
his father's Iowa farm-equipment
business, credits the bear market in
gems with his initial success. "If
there's a guy in Great Falls, Mont,
who's interested, you want to know
about him right away," he explains.
"If you can save yourself 27 phone
calls to brokers, so much the better."

Polygon bills itself as a neutral sup-
plier of information and a clearing-
house for those who want to buy and
sell in anonymity. In a business where
five appraisers can come up with five
different estimates of a stone's worth,
Voorhees confines his data to size,
shape and other physical matters. The
emotion he leaves to buyer and seller.
Monthly rental fees — from the likes
of Zale Corp., the Gemological Insti-
tute of America, Leser Industries and
about 90 other subscribers so far —
will allow Polygon only to break even.
Profits depend on trading fees. Sellers
who want to unload a stone quietly,
Voorhees hopes, will pay for privacy.

The company, however, offers no
special terms or trial offers, a depar-
ture in a business where haggling is a
way of life. Voorhees says his associ-
ation with Xerox comes in handy
here: "I say to a guy who is trying to
bargain, 'If it were up to me, you'd get
a break. But you know how those guys
at Xerox are.' " — Barbara Rudolph

Flowering in
the Sunbelt

"One thing about life insurance has
not changed," says W. Ashley Ver-
lander. "It must be sold — you can't sit
around and wait until someone calls
you to order a policy like a pizza."

Verlander knows whereof he speaks.
He is president of American Heritage
Life (1981 revenues, $160 million; life
insurance in force, $7.7 billion). Since
1957, the year after AHL was founded
in Jacksonville, Fla. by Verlander and
Claude Kirk (later governor of Florida)
with $505,000 from 17 investors, the
company has had continual increases
in total income.

From the beginning Verlander start-
ed selling by courting companies to

sign up employees for automatically
deducted payroll allotment insurance.
Now, more than 2,700 companies are
on the rolls (with 40% of their em-
ployees, on average, in AHL plans).
Verlander says 93% of these policies
are the much more profitable perma-
nent insurance rather than term. The

America)! Heritage Life's Verlander
Go where it's tough.

lapse rate for this type of insurance is
considerably lower than the industry
average because an employee has to
make a real effort to drop the cover-
age. AHL will write accident and
health policies only if a group has 100
or more members and if it buys group
life. AHL also is pushing for higher
deductible levels — giving employees a
real incentive to keep down claims.
The higher deductible, says Ver-
lander, is the most effective tool in
controlling costs.

The company decided back in
1972 that inflation and high inter-
est rates would be around a while.
So, AHL decided not to let its bond
portfolio exceed six or seven years
in average maturity. Its mortgage
loan investments are confined to
Ginnie Maes, and only 16% of
AHL's total investments are in un-
profitable 6% policy loans.

Verlander, 60, president of AHL
since 1962, points with pride to the
company's southern roots. Jackson-
ville was chosen as headquarters for
three reasons back in 1956, he ex-
plains: No ordinary life insurance
company had headquarters in the
Southeast; a number of potential cor-
porate customers were headquartered
there; and, since Florida had the most
stringent insurance laws in the re-
gion, it wasn't a likely place to have
much competition. — Stanley W. Angrist

)RBES, OCTOBER 11, 1982

233

2£.

Meet a
Billion Dollar.
Energy Corporation
Committed To

The Utility Business

We re ONEOK Inc. (pronounced one-oak), a diversi-
fied energy corporation involved in the utility business,
exploration and production, natural gas processing, con-
tract drilling, and more. We have a strong commitment
to the utility business. Our Oklahoma Natural Gas
Company is the nation's 7th largest integrated natural gas
utility. We have major new investments in pipeline proj-
ects. Our gas supply is among the best in the nation.
ONEOK. Our NYSE symbol is OKE. Perhaps it's time
you knew more about us. Ask your broker.

ONEOK

For our Annual Report, write: P. O. Box 871, Tulsa, OK 74 102

The Forbes/WUshire 5000 Review

12 month closeup

Market Value of Wilshire 5000:
$1,255.7 billion as of 9/17/82

A Nl }

ire come the cherry pickers. Despite some confusion
long professionals about this summer's sudden market
lly, the indexes continue to suggest the bull market is
al — and expanding on cue. The Wilshire 5000, the best
dicator of broad activity, climbed marginally in the past
ro weeks. The o-t-c index, however, showed the biggest
mp, up 3.5% from the prior two-week period. And for
e past four weeks the Amex index outpaced the others.
This is typical of previous long rallies. When the blue
dps — best monitored by the Dow, which is now falling
ck slightly — become fully priced, investors begin shop-

ping elsewhere. First it's the NYSE, then the Amex and
finally the o-t-c market.

What are people buying over-the-counter? Companies
like Paraho (oil shale recovery), Billings (hydrogen re-
search) and Fonar (medical scanning equipment) show up
among the percentage gainers. In short, the same sort of
technology- and energy-related issues that have been pop-
ular over the past two weeks on the NYSE — just smaller
companies with less float. The traditional cherry-picking
has begun. This is the first sign that individuals and
smaller institutions are getting into the game.

Close-up On The Equity Markets

Performance of six leading indexes

'ercent change

Wilshire

Forbes

Dow Jones

NYSE

Amex Market

NASDAQ

5000

500 1

industrials

Composite

Value Index

Composite

in last 4 weeks

9.1

8.4

5.5

8.8

13.2

11.8

ii last 52 weeks

2.9

N.A.

9.7

4.6

-3.7

1.3

Stock performance based on five key investor yardsticks

Percent change

Volatility2

P/E multiple

Dividend yield

Growth profile3

Share price

high

low

over 25

under 5

over 7.5%

none

high

low

over $40

under $4

in last 4 weeks

13.0

4.0

11.9

11.0

5.0

10.0

12.3

6.2

12.0

9.1

n last 52 weeks

10.4

12.8

-3.2

19.8

13.6

15.0

11.7

12.7

5.6

4.6

y Not available,
ised on sales

stock's sensitivity to overall market movement High-volatility issues have wide price fluctuations, low-volatility issues are more stable,
quantitative evaluation of a stock's growth image, determined by Wilshire Associates.

3te: All data for periods ending 9/17/82. Prepared by Wilshire Associates, Santa Monica, Calif.
3RBES, OCTOBER 11, 1982

235

Where The Action Is

Energy on the upswing. After the worst 52-wcek perfor-
mance of any sector, energy issues are beginning to
breathe life. Energy showed the second-largest gains over
both the last two and the last four weeks. Spot oil prices
and heating oil prices are on the rise, and the result is
sudden action in some of the oil issues.

Oil and gas exploration stocks showed up in the pe
centage gainers, including Damson Oil and Wilshire Oi
Other big movers were Tosco, a refiner, and Pionee
which is big in natural gas. The two-week biggest dim
however, came from the finance sector. The leaders thei
are Merrill Lynch and other brokerage houses.

Percent change in last 52 weeks

Percent change in last two weeks

Capital goods

t 25

0 "N»-v

-25

1 1 1 1 1 1 1 1 ! 1 1 1 1

1 1 1 1 1 1 1

W

MINI

'81 1 '82

Energy

+ 25

0

-25

1 1 1 1 1 1 1

1 1 I 1 1 1 1

II I 1 1 1 1 1 1 1 1 I

'81 1

'82

Technology

+ 25

/
0.1

I I I I I I I I I I I I I I I 1 I I I

'81

'82

Consumer durables

-25

I II II I I I I I I I I I I I I II I I I I I I I
'81 "">

HI

Finance

-25

-25

I I I I I I I I I I I I I I I I I I I I I I I I

'81

'82

Transportation

25

-25

I I I I

I H I I I I I I I I I I I I I I I I

'82

Utilities

+ 25

-25

I I I I I 1 I I I I I I I I I I I I

I I H I

'81

'82

What The Analysts Think

The ride is over. Figuring, perhaps, that the fast ride up
on the brokerage stocks is over, analysts moved financial
issues to sixth place from second. Consumer nondura-

bles, the 52-week darling, also fell — tumbling to seven!
place from first. Now watch capital goods, the hard coj
of any recovery, which has moved up smartly.

Current

Rank

Rank

Rank

Sector

opinion

2 weeks ago

4 weeks ago

1

Technology

2.31

3

2

2

Capital goods

2.50

6

3

3

Utilities

2.56

4

1

4

Energy

2.57

5

4

5

Transporation

2.61

7

6

6

Finance

2.64

2

5

7

Consumer non-durable

2.67

1

7

8

Raw materials

2.75

8

9

9

Consumer durables

2.92

9

8

Opinion ratings are ranked on a scale of 1 (strong buyl to 5 (strong sell) Data reflect the
views of 200 institutional analysts. The consensus of opinion graph is the composite

rating of 1,200 stocks, while the sector breakdowns correspond to industry groul
gTaphed above. All figures are weighted for market capitalization.

Note: All data for periods ending 9/17/82. Prepared by Wilshire Associates, Santa Monica, Calif

236

FORBES, OCTOBER 11, 19

Not all of today's
entrepreneurs are here

in Silicon Valley.

If we'd been doing our work on voice
recognition in Silicon Valley, perhaps you'd
think of us more as entrepreneurs.

Because voice recognition— teaching
computers to tell one person's voice from
another— is an exciting new technology.

The kind that made Silicon Valley.

Voice recognition is a technology with
enormous industrial and military potential.

And at ITT we've developed it to the
point where it's close to being introduced
in commercial markets.

ITT is International Telephone and
Telegraph Corporation. Very decidedly a
high-tech company. c

We're investing
in the future. What are
you investing in?

-4* S'-

1982 International Telephone and Telegraph Corpor

320 Park Avenue, New York, N Y 10022, US A.

Streetwalker

The markets arerit supposed to behave the
way they do today. That's why Wall Street
professionals arent as happy as you think.

An old game
with new rules

By Priscilla S. Meyer

WHEN IN A MATTER of Weeks
the stock market jumps 200
points, bond prices almost
keep pace and gold jumps a whopping
60%, professional traders must be get-
ting rich. Right? Not really.

Many pros pulled into the black on
the leaping markets, but some lost
money and more than a few are spend-
ing sleepless nights (see p. 132). One
Wall Strecter, who repeatedly sold the
stock market index short and bought
tons of cotton futures, put a gun to his
head and pulled the trigger. Markets
are moving in ways that have no par-
allel in the memories of the pros.

Listen for a moment to Jay Herman,
a longtime commodities trader: "My
instincts keep telling me to short the
stock market. You can't have all these
things happening at once. Something
is wrong with the tandem. Look at the
commodities futures. In the last bull
market wheat and corn were strong.
Now grains are at their lowest in a
year. Sugar is hitting new lows. Cop-
per is somewhat above its low, but
cotton made a new low. It's so totally
new to me that I am trying to fathom
what it means."

If the stock market says things are
going to get better, why is the gold
market (which rises on inflation and
other bad news) saying that things
are going to get worse? And why, at
least, aren't the other commodities
(which also respond positively to the
prospect of inflation) going along
with gold?

Perhaps because of all this, there is
talk that the stock market could col-
lapse to its pre-August levels. The
composite opinion of securities ana-

Baffled W all Street traders

What's wrong with the tandem?

lysts has tipped in a bearish direction
(see p 236). Then there's the steady
flow of bad news from Washington —
rising unemployment, sagging sales
and reduced industrial production.
It's hard to understand how a stock
market, which some say has already
discounted a recovery that may not
occur, could help but tumble. Hard,
but not impossible.

The trick is that new rules apply.
Something genuinely different is hap-
pening that is sending economists
back into the history books: a disinfla-
tionary recovery.

Look at personal balance sheets.
Typically, when a recession ends,
consumers are burdened with debt —
but not this time. American consum-
ers have come through the 1982 reces-
sion with credit accounts in the best
shape since early 1974. The New York
State Bankers Association, for exam-

ple, says consumer credit dcfaujl
among New York banks were 3% I
under for the four months ending 6
Inly. That's the lowest since the pjl
1975 recession month of June 1971
Retailers such as Sears, Roebuck com
cur that credit accounts have nevi|
been in better shape. Consumers ha||
had the capacity to buy throughoi
the 1982 recession; they arc simp
showing restraint.

Now look at buying patterns. Pej
pie are starting to spend again, but
ways more like the Thirties than tl
Sixties or Seventies. Retailers half
discovered over the past two yea
that "background" sales arc cvapors
ing. Customers are now coming in
stores for advertised items and thq
leaving without making armfuls
impulse purchases. Buying patten
have changed dramatically, but tl
seeds were planted in the 1975 rcce,
sion, not this one.

What all this means is that tl
economy's rebound will be sic
and less dramatic than in the past-
but ultimately more solid.

The fact that consumer spendu
isn't surging, of course, troubles W3
Street's bulls. But they can tal
comfort from another encouragm
trend. The international banking syi
tern is shaking so hard that the U.i
marketplace, with its prospects
slow but solid growth, looks vei
good indeed. "I suspect that what vj
are seeing is not only the panic
the underinvested but also the flig]
into stocks of wealthy individua
from all over the world," obscrvi
Barton Biggs, Morgan Stanley
economist. "The price of gold is
60% in a few months because peopt
are buying gold for the same reasq
they are buying stocks and goverj
mcnt bonds. It is a flight into qui
lty. Suddenly a certificate for 13, 0(
shares of General Electric or IBi
seems as safe and liquid as a millioi
dollar CD of any bank."

If Biggs is right, the stock market
not about to collapse anytime soon,
general he predicts that "quality lonl
term financial assets are going a \\
higher," while "lower-quality compi
nies are going to have trouble gettiit
money to finance their growth," eve
where they spot emerging deman
Pressure on the banks is going 1
make lenders a lot pickier.

In a matter of only a few month
the market has moved from bit
chips to emerging issues on the smal
er exchanges (see p. 235). Institutior
also are starting to dabble in the stroi
ger oil stocks. If the recovery is rea
although slow, can oil possibly g
lower? ■

238

FORBES, OCTOBER 11, 1981

Your Daily
Newspaper

Your Daily
International Newspaper

wspaper on the left you know, the one on the right
ght not. The Financial Times is the primary source
riess information for European and, increasingly,
id other world business leaders,
fact, to ensure you do receive a complete picture
nternational business world we have 255 specialist
lists and 18 foreign bureaus around the world,
three times as many foreign bureaus as the paper
left.

sver before has international competition been so
lor the need for American executives to get a fast
ep view of the international business world been
t.

lat's why the international edition, printed in
urt, leaves for New York ahead of the sun on a
flight, connects with our delivery system and is
shed to you.

Financial Times

Europe's business newspaper
now for the International American.

I'd like to receive the Financial Times.

□ 1 year Monday through Friday: $300

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Mail to: Financial Times, FT Publications, Inc.

75 Rockefeller Plaza, New York, NY 10019

Or call: 1-212-489-8300

Statistical Spotlight

Blue chips are pacing this rally, but lots of
secondary stocks are having a rough time.
Will they be tomorrow's top performers?

A no-name
shopping list

General Motors, here's a surefire way
to steal his thunder. Start talking
about stocks like Alahama By-Prod-
ucts, Archie Enterprises, Florida
Automotive Marketing or Rexco In-
dustries. If you don't know what is so
special about these firms, read on.

By Steve Kichen
and Paul Bernstein

A, Nil, NEXT COCKTAIL l'ARTY,
when some assertive hotshot is
t boasting about his recent gains
in blue chips like Kodak, IBM and

Over the period from Aug. 16
Sept. 14, investors were creating $18
billion in market value. That sura
was one of the greatest short- terj
market moves ever. But obscure com
panics like those mentioned above-
as well as the likes of Hackensac
Water and Z&Z Fashions — aetualll
lost ground. They weren't alone: Q
the next six pages we are presenting
list of 276 profitable firms that fare
the poorest during the recent rally.

Smaller stocks often get left behin
when the market makes a majc
move. In the bull market of the S\i
ties the Dow led the broader average
as it marched upward. Much the sarm
took place in 1974. Then the Dot
moved smartly off its low in Decern
her, but the Amex and NASDAQ ir[
dexes didn't start to take off until lat
January 1975. But over the long hau
the little guys actually outperforme
the blue chips— the NASDAQ, for en
ample, rising 286% by May 1981
compared with the Dow's 72% gainj

Don't bet your life savings that thi
repeat performance will be exactll

Losers today, winners tomorrow?

These days most investors can smile when they read
the financial pages. But shareholders in the follow-
ing 276 firms are still hoping that their stocks will

join in the fun. These companies, all profitable,
were the rally's worst performers — which may
mean they'll post the biggest catch-up gains.

-Price-

-Latest 12-month —

Market
capitalizai

Exchange

Company//«A/»cvs

recent

8/16/82

% change

EPS

P/E

Yield

tion (mil)

0

Major Exploration/^// «' gas explor, </er

1

1%

-42.9%

$0.05

20

$ 18.9

n

Hackcnsack Water//m/(r Utility

17'/h

26

-33.2

2.69

6

10.6%

62.8

o

Intcrmedics////<v//< ((/ products

15%

22%

-30.4

1.89

8

152.3

o

Sykes Datattonicsl computer equipment

8%

12

-30.2

0.54

16

105.8

, p

Biosearch Medical Prods/ 'medical products

11

15'/.

-27.9

0.15

NM

33.8 !

0

Horizons Resefktoh/photographh equipment

3%

-26.7

0.55

5

3.2

0

Alo-Scherer HzahYic&it /proprietary drugs

3

4

-25.0

0.45

7

4.8

0

Cable TV iaA&l electronics

ay*

4'/4

-23.5

0.53

6

9.8

o

HC A/ insurance

9

11%

-23.4

1.83

5

5.6

24.5

o

Intl Capital Equipment/finance

4'/4

5>/a

-22.7

0.35

12

9.2

0

Qotaa.it /airline

316

416

-22.2

0.36

10

5.7

o

Mormac Encrgy/o/7 6 gas explor, dei>

316

416

-22.2

0.10

NM

9.0 i

o

Separex/ 'industrial equipment

1%

1%

-21.4

0.11

13

1.8

o

Joseph Dixon CrucibleA)///< e supplies

21

26 Vi

-20.8

1.25

17

14.9

o

Chef s \ni\l restaurants

1

w*

-20.0

0.02

NM

12.5

o

Micros Sy stems/ computer equipment

1 16

1%

-20.0

0.08

19

5.4

Republic Resources Tex/o// < - gas explor, iter

1

-20.0

0.03

33

7.8

Am Commonwealth fin/ insurance

6 Va

7%

-19.4

1.53

4

15.5

o

Bonray Drilling/o/V & gas drilling

3'/4

4

-18.8

1.89

2

14.3

o

i ;e Drill! my oil & gas drilling

516

63A

-18.5

1.70

3

9.6

0

Delta Data Systems/computer equipment

I'/k

Wt

-18.2

0.28

4

3.1

o

Heritage Bancorp Cal/bank holding

5%

7

-17.9

1.72

3

24.7

0

American Magnetics/computer equipment

216

3

-16.7

0.12

21

9.3

o

Lifesurance Cotp/insuratU <•

5

6

-16.7

0.17

29

3.8 ;|

o

STV LtyjjineKts/engineering seri nes

2'/i

3

-16.7

0.33

8

1.8

a: American Slock Exchange rt: New York Slock Exchange. 0: over-the-counter market NM Not meaningful

Source Wilshin Vsociattt

Ml)

FORBES, OCTOBER 11, 1982

We doubled our audience of Senior Executives
in European companies with 250-plus employees —
An increase of 50% over 1980.

Our audience is distributed
throughout Europe —
not concentrated in one country.
And

We have the lowest cost-per-reader —
Both black/white and 4-color.

1982 EUROPEAN BUSINESSMAN READERSHIP SURVEY

COST PER READER

INCREASE 82 AUDIENCE BLACK/WHITE 4-COLOR

'82 OVER '80 TOTAL EX. U.K. TOTAL EX. U.K. TOTAL EX. U.K.

BUSINESS WEEK INTERNATIONAL 50% 23,809 16,790 $.12 $.17 $.18 $.26

ECONOMIST 5 17,240 8,895 .35 .67 .54 1.05

FINANCIAL TIMES 7 43,148 13,897 .56 1.74 .82 2.54

FORTUNE 8 12,417 9,919 .32 .41 .49 .62

HARVARD BUSINESS REVIEW 11 16,985 12,906 .31 .40 .42 .56

INTERNATIONAL HERALD TRIBUNE 5 6,310 5,354 3.30 3.89 7.73 9.11

INTERNATIONAL MANAGEMENT 18 21,970 15,722 .21 .29 .30 .42

NEWSWEEK INTERNATIONAL 39 16,160 12,707 .47 .60 .80 1.01

TIME 4 20,404 17,231 .69 .82 1.08 1.28

Cost efficiencies based on '82 Europe edition rates — if applicable.

If we don't acknowledge this, who will?

The worldwide business weekly

Call:

ATLANTA: (404) 252-0626. BOSTON: (617) 262-1160. CHICAGO: (312) 751-3700, CLEVELAND: (216) 781-7000, DALLAS: (214) 742-1747, DENVER: (303) 825-6731, DETROIT: (3131 352-9760,
HOUSTON: (713) 462 0757, LOS ANGELES: (213) 487-1160 MINNEAPOLIS: (612) 332-7425. NEW YORK: (212) 997-6868, PHILADELPHIA: (215) 496-3800, PITTSBURGH: (412) 227-3640,
ST. LOUIS: (314) 227-1600, SAN FRANCISCO: (415) 362-4600. STAMFOR0: (203) 359-2860. WASHINGTON: (202) 624-1265

ONE COMPANY KEEPS TURNING OUT
A BRAND NEW EYE-IN-THE-SKY.

THE COMPANY IS GRUMMAN.

Specifically designed for airborne early
warning, its official name is the E-2C. But it's
familiarly known as the Hawkeye.

And the name is particularly appropriate.
Because the carrier-based Hawkeye is the only
AEW aircraft that can see as clearly over water as
over land. In fact, it's the only aircraft of its kind
in the world.

On the outside, the Hawkeye hasn't
changed at all from one year to the next. But on
the inside it's another story. Because year after
year, we've made the aircraft do more and more.
Despite the fact that advancing technology
has made electronic components smaller and
smaller, the Hawkeye is still packed with radar
and computer equipment.

With its sensing abilities and highly devel-
oped electronic brain, the Hawkeye can survey
238,000 square miles of water or land space,
can keep track of over 600 air targets at one time
and never mix them up. By looking beyond the
horizon and relaying what it sees, the Hawkeye
can alert and manage the necessary forces to
counter any threat.

Providing an eye-in-the-sky with capabilities
like these requires a host of technologies.
Coming soon: an aircraft that takes off and lands
like a helicopter and flies with the speed of an
airplane. So whether it's keeping today's aircraft
pre-eminent or making tomorrow's unmatched,
we have the technology for the job at hand.

THE TECHNOLOGY FOR THE JOB AT HAND

GRUMMAN

Statistical Spotlight

the same. The big difference between
1974 and now is in the relative stand-
ing of the secondary issues. "Between
1972 and 1974 the secondary stocks
were in a massive downtrend and had
tremendous catching up to do," says
Stephen Leeb, editor of Investment

Strategist. In recent years, however,
secondary issues have helped buoy
the market.

Not surprisingly, with the relative
strength of the Amex and NASDAQ
indexes in this rally, there, is some
genuine leadership in the second tier
of the market. Issues such as Bor-
man's, Pulte Home and Fleetwood
Enterprises have outperformed the

major indexes by a wide margin. Bi
hundreds of other stocks underpe:
formed the averages, and we decide
to set up a computerized search
identify these laggards. The resull
are surprising: Of the more than 5,0C
issues covered in Wilshire Associate:
computer database, 1,435 failed t
show any gains during the first 2
market days since Aug. 16, 1982.

Losers today, winners tomorrow?

-Price-

— Latest 12-month-

I ■ I

Exchange

Company 1 business

recent

8/1 A/k9

°/o cll3ngc

EPS

P/F

I It IU

tion ( rni.

0

US Energy Cotp/mining

£1/
0/4

71/

/ 72

1 ^ 70/
— Id. / /o

3>U.ZZ

Zo

<C 1 7 0

j> 1 r .y

a

Hatataml electronics

£7/

0/8

1 /L /I

— 10. 4

ZU

1 3 0

0

Insyte/Vtw/ estate, oil & gas

2

2%

-15.8

0.43

5

1.8

0

University Real Estate Trust/#£/7

4

4%

-15.8

0.33

12

—

14.0

o

Windsor Life Ins Am/ 'insurance

2

2%

-15.8

0.08

25

—

3.3

o

Bingo recreation

Z 74

1 1/
o'/4

1 C /I

— ID. 4

U.JJ

Q
0

0.0

"2 7

6J

o

Cymaticolor/q//'/tc equipment

0/2

0/2

1 £ /I
— 1 3.4

u.uz

IN M

4U.Z

o

General Production/o/V & gas explor. dec

2%

3l/4

-15.4

0.72

4

8.7

o

Levin Computer/fo/wp/ //<.'/" services

1%

1%

-15.4

0.05

28

—

3.0

o

Allegheny & Westn Engy/o/7 & gas explor. dec

3V2

4 78

-15.2

0.02

NM

—

24.8

o

Erb humotxl building materials

Q 1/,
0 72

1 n

— 13.U

U.04

1 2

io

7 7

o

Kloss \ lacol electronics

A 1/
4'/4

c
D

— 1 r>.U

U.oy

0

/.1

o

Marsh Supermarkets/^rocwT stores

12l/8

14'/4

-14.9

1.99

6 *

4.0

43.9

a

Gaylords National/retailing

3

3'/2

-14.3

0.22

14

—

3.7

0

New York Testing Labs/ laboratory services

Wi

1%

-14.3

0.15

10

—

1.2

o

Colonial Bancorp//w«£ holding

l 1 1/

14 74

1 a n
— 14. U

a 1 7

o.i f

A

4

1/17
14. /

Zo.U

o

Atlan-Tol Inds/ industrial equipment

O/8

4 72

1 3 0
— lo.y

1 A
1 0

3 1
O. 1

a

Littlefield, Adams/apparel

3'/8

3s/s

-13.8

0.18

17

5.1

3.4

o

Global Natural Res/o// & gas explor, dec

8%

10V«

-13.6

0.07

NM

—

185.0

o

Kyle Technology/w«Y/ca/ equipment

4%

5%

-13.3

0.33

15

—

12.5

n

Pengo Inds/o////t7(7 equipment and services

13/.
O 78

0/8

— ll.y

U.70

4

u.o

oZ.U

0

Summit Oilneld/o//7«7rt services

6-Vn

11/

— ll.y

U.bo

<

inn

o

Peek N Peak Rec/ recreation

1%

2

-12.5

0.21

8

1.3

a

Winkelman Stotesl apparel

8'/4

9%

-12.0

0.17

NM

6.1

12.5

o

Biospheiicslpub/isbing & tech svs

IVl

8'/2

-11.8

0.02

NM

—

14.6

0

ADM Inds 1 household products

Z

0 1/.
Z 74

1 1 1

n 1 0

U. 1 y

1 1
1 1

1 7

a

Astrex/ electronics distribution

0
0

0

1 1 1
— 11.1

1 . 1 i

7

1 7 0

lz.y

o

Florida Automotive Mktg/c«//o parts distrib

2

2>/4

-11.1

0.37

5

i.i

n

HRT Inds/ 'retailing

8

9

-11.1

1.27

6

5.0

28.1

a

RMS Electronics/ 'electronics

4

4'/2

-11.1

0.16

25

—

6.4

o

Rule lnaslmarine hardware

2

21/4

—11.1

U.l /

11

D.O

VY\\J\\\~\3 1 j \.t\ )Lx C 1 ■« > 1 * l (/It r i< HI

4'/8

45/s

-10.8

0.54

g

5.0

n

Gulf Resources & Chem/metals

12%

13%

-10.8

0.33

NM

111.0

o

Kimberly Oil & Gas/ 'oil & gas explor, dev

6V4

7

-10.7

0.33

19

23.4

o

American Cap Ins/ insurance

2Vs

2%

-10.5

0.25

9

3.6

o

Funtime/recreation

4'/4

4%

-10.5

0.35

12

4.7

8.4

o

Savannah Foods & Indslfood processing

17

19

-10.5

6.38

3

8.2

65.4

o

Wausau Paper Mills/paper products

6l/2

7V4

-10.3

0.19

34

5.5

25.1

o

Multibank Tinanciallbauk holding

30 Vi

34

-10.3

7.97

4

6.2

40.3

o

Advance Circuits/e/cc/ron/cs

2'/4

2'/2

-10.0

0.28

8

6.7

o

Aemsonictaerospace

l'/s

1 lA

-10.0

"0.04

28

4.5

Affiliated Hosp Prods/ medical supplies

lOVk

IP/4

-10.0

2.00

5

2.8

15.7

o

Cibola Energy /oil & gas explor, dev

2Vt

2'/2

-10.0

0.05

NM

11.1

o

Computer Designed Systs/ computer equip

lVa

l'/4

-10.0

0.14

8

1.8

o

Computer Horizons/cowp///er services

2%

IVl

-10.0

0.17

13

2.6

a

Saunders Leasing Syst/truck leasing

2 74

2 72

-10.0

0.48

5

8.9

6.81

o

Z& Z tashwnslretailing

I'/b

VA

-10.0

0.25

5

1.0

o

Amfec Indslfood distribution

57/8

6V2

-9.6

0.91

6

6.5-

a

Mid- 'Imerica Inds/auto parts distrib

57/s

6V2

-9.6

0.78

8

5.5

10.6

a: American Stock

New York Stock Exchange, o: over-the-counter market NM: Not meaningful

Source VC'ilsljire j\ssociaie\

244

FORBES, OCTOBER 11, 1

/ell-publicized problems about the
inces of several foreign nations
3ed New York City banks lead the
idard &. Poor's list of industry
ups that lagged the rally. Big Apple
ks fell 1.5%. Groups that stayed in
black but still underperformed the
rket include: electric and tele-
>ne utilities, steel companies and a
nber of building-related groups.

And our lists turned up scores of trou-
bled companies in areas such as oil-
field services, electronics and com-
puter equipment.

Our initial computer run eliminat-
ed the firms that had stayed even in
terms of market price and left us with
595 stocks that actually lost ground.
We then added two refinements: We
eliminated companies with negative

per-share earnings for the latest 12
months and dropped stocks selling for
less than $1 per share. The accompa-
nying tables show the 276 issues in
order of their percentage decline.
These are the issues people sold while
the overall market was soaring.

Investors had good reasons to shy
away from at least some of the compa-
nies on our tables. Leading our list, for

Losers today, winners tomorrow?

-Price-

change

Company//;/ isiness

recent 8/16/82 % change

— Latest 12-month-
EPS P/E

Yield

Market
capitaliza-
tion (mil)

A r p h i p Fntp rn ricpQ//)///)/ ; </i /no

4%

5%

-9.5%

10

1.3%

$ 2.8

o

Old National Bancotp/bank holding

12%

13%

-9.3

1.44

9

6.9

29.8

n

Jim Walttt/built/ing

19%

21%

-9.2

0.17

NM

5.1

326.6

o

First Commerce//*///^' holding

19'/2

21%

-9.1

4.97

4

7.4

62.9

o

Crested Butte Silver Mxi/tnining

Wa

1%

-9.1

0.05

25

9.3

Q

Cnitimprf ial \v\\\lt(tinl twocpssino

Wa

1%

-9.1

0.08

16

6.0

O

CSM Systems//»tV(f/ fabricating

2Vi

2%

-9.1

0.22

11

1.7

Esquire Radio & Electronics/ electronics

20

22

-9.1

5.43

4

4.1

9.7

o

Farm House Foods//orW wholesaling

3%

4'/s

-9.1

0.51

7

27.8

o

McGill Mfg/ 'industrial machinery

25

27 Vi

-9.1

3.96

6

5.6

35.4

Citi7Pti« 1st Ranrfirn//j/7n/' lifiltlitju

191 UdllLUl VI tlt.ll IK l.'Uttiltll^

21%

23 %

-9.0

4.71

5

9.3

24.9

o

Anderson Industries/metal fabricating

3%

4'/4

-8.8

0.76

5

11.4

8.1

o

Alabama By-ProductsA oal mining

52

57

-8.8

8.66

6

4.6

91.4

o

Paraho Development/^// shale

2%

27/8

-8.7

0.34

8

6.3

a

Weatherford Intl/ 'oilfield equipment

13'/4

14'/2

-8.6

2.36

6

3.0

115.3

VJCU 1 ,S iJTllJII^HJIl V_- \J 1 1 1 USUI It / ILL

4

4%

-8.6

0.63

6

6.0

10.8

o

Sovereign Corp/ insurance

6%

7%

-8.5

0.56

12

1.5

50.9

a

Wells-Gardner Electronics/e/fc//o;//o

10%

11%

-8.4

2.25

5

4.7

37.7

a

Guilford Mills/ textiles

19'/8

207s

-8.4

2.96

6

3.8

92.5

o

Health Care & Ret Co Am/health care sis

5%

6

-8.3

0.94

6

2.2

15.9

Intl Inst A nnli pn Tprn Ay mitti iti*v <t*n 1 it y>c

1 1 1 l I 11191 rV I J I) 1 It. U A L LH 1 ll/ltlL 1 .>C / t (-Lcj

1%

l'/2

-8.3

0.20

7

5.2

o

Johnson Electronics/tVfcVroracs

16'/2

18

-8.3

0.17

NM

10.9

o

Laser Precision Corp/precision instruments

5'/2

6

-8.3

0.30

18

—

3.7

o

Life Sciences/// ulustrial serrices

1%

l'/2

-8.3

0.23

6

1.7

o

Saxton Products/tVt't7/7cv// equipment

2%

3

-8.3

0.65

4

1.2

o

T Ttah ^lialp T anA ft IWtTt^/t ii/ <h/ilp
y : idii 7iiuic Xjctiiu ot Liims/tju s /set it.

1%

Wi

-8.3

0.02

NM

5.9

o

Vanderbilt Energy /oil & gas explor & dev

4'/8

4%

-8.3

0.11

NM

15.1

o

Visual Electronics/o///cc equipment

1%

Wl

-8.3

0.10

14

4.8

a

Presidential Realty/rec// estate

4%

4%

-8.1

0.21

20

5.7

2.0

n

Bausch & Lomb//>ec////> care products

35%

38%

-8.1

3.57

10

4.4

426.4

o

Turf Paiadise/ racetrack

2%

3'/«

-8.0

0.34

8

7.3

n

Jewelcor Vac/jewelry retailing

4%

4%

-7.9

0.04

NM

12.5

o

Kentucky Horse Center/stable sen ice

3

3%

-7.7

0.03

NM

5.4

o

Bibb Co/textiles

12'/4

13'/4

-7.6

3.31

4

1.6

20.2

o

Central Pac Corp QaMilhank holding

9'/2

10%

-7.3

1.98

5

6.7

29.0

o

Smithfield Foods//bcW processing

4Va

5 y%

-7.3

0.72

7

8.9

a

Pep Boys: Manny, Moe, Jack/«///o parts retail

36%

39%

-7.3

4.60

8

2.2

90.8

o

FirstBancorp//;f/;/A' h< tiding

22 '/4

24

-7.3

4.68

5

7.2

31.1

o

Amerford hitl/freighl forwarding

6V2

7

-7.1

0.95

7

1.1

8.7

o

Dynamics Research///rccis/o;/ instruments

6V2

7

-7:i

1.20

5

5.3

o

Patriot Bancorporation//;«/M> holding

13

14

-7.1

4.49

3

7.7

10.6

n

Technicolor/////// processing

8%

9

-6.9

2.09

4

8.6

38.2

o

Automatic Film Process/////// processing equip

3%

3%

-6.9

0.06

NM

11.5

o

Health Info Systems/c omputer services

6%

7Va

-6.9

0.34

20

14.9

o

Unite! Video/r/<7tv; services

6%

7.Va

-6.9

0.57

12

8.6

n

Tesoro Petroleum// /cV/Wc/////

15'/4

16%

-6.9

3.01

5

2.6

235.2

n

Southwest Bancshares//xr</z& holding

20 '/2

22

-6.8

4.53

5

5.9

1,047.9

a

Power Test Cotplgasoline retailing

12'/g

13

-6.7

1.00

12

2.5

46.6

n

First National Boston/bank holding

22%

24 '/4

-6.7

6.06

4

8.5

432.4

o

Altius Carp/metal fabricating

Wa

17s

-6.7

0.01

NM

1.1

0.7

American Stock Exchange, n: New York Stock Exchange. O: over-the-counter market NM; Not meaningful Source Wilshire Associates.

RBES, OCTOBER 11, 1982

245

Statistical Spotlight

example, is Major Exploration, an oil
and gas firm. It is currently involved
in several lawsuits over the value of
petroleum properties and controver-
sies about the size of its reserves.

Then there is Intermedics. Despite
company denials, investors were ap-

parently worried that this Texas-
based medical equipment maker,
whose stock declined more than 30%,
could be adversely affected by a gov-
ernment probe into Medicare abuses
involving cardiac pacemakers. Mean-
while, ICH, a Kentucky-baSed insur-
er, plans a stock reorganization that
wasn't enthusiastically greeted by its
shareholders. And the filing for Chap-

ter 1 1 by Manville Corp. because
asbestos suits probably had a negati'
effect on Jim Walter, another buildn
materials company.

But it wasn't all bad news that w
depressing these stocks. More th
70% of the issues on our list ha1
market capitalizations of $25 millic
or less. Since this rally has so far be«
fueled by institutions and foreign ii

Losers today, winners tomorrow?

-Price-

-Latest 12-month —

Exchange

Company//j/iN7Mt'v

recent

ft /I /Wft7

% change

[in.

Lr j

p/p

\ 1 i-l ,1
I lclQ

tion (mi

O

Cambridge Royalty/o/7 & gas royalties

OV2

13/
J/4

s 70/
—0. / /o

cn n7
J>U.u /

C Q A
& 0.4

n

Daniel \i\Asl precision instruments

12 74

171/
10 78

—O. /

1 7n

7

1

1 CO/
1 .D /O

1 117 1

lot .6

o

Autoclave Engineers/p/vtls/oM instruments

10%

11 Vi

-6.5

0.86

13

1.1

30.7

0

American Income Life Ins/ 'insurance

21%

23 %

-6.5

2.61

8

145.6

n

Howell Petroleum/o/7 & gas explor & dev

12%

13 Vi

-6.5

1.43

9

3.2

68.1

n

Steego (..otplauto parts distributor

J7R

17/.

— 0.0

U.Zo

1 J

0.0

LI .0

o

Vaughan-Jacklin/rt(t;n<i7//////"#/ products

1U /B

1 1 s/,

1 1 78

/: c
—O.J

1 .uz

1 1
1 1

A A
4.4

1 n 7

1U. /

o

Aid Auto Stores/c////o parts retailer

i%

2

-6.3

0.19

10

1.3

o

Boonton Electronics/precision instruments

7Vi

8

-6.3

0.45

17

—

5.8

o

Genoxa/buildit ig st tpplies

1%

2

-6.3

0.32

6

—

4.8

o

j o i l. /•

Independent Bankshatesl batik holding

1 1 1/

1 1 74

1 z

—O.O

1 A C

a
0

Zo.U

o

Lane Wood/ 'manufactured homes

13/.

A

—O.O

n /i 2
U.4o

y

c 1

o

NORPAC Exploration/o/7//e/(/ services

3%

4

-6.3

0.80

5

17.1

o

Oakridge Exploration/o/7 & gas explor & dev

IVs

2

-6.3

0.11

17

7.6

o

Sterling Pipe & Supply /oilfield ec/uipment

1%

2

-6.3

0.76

2

5.0

n

H.onsotilhouseh( >ld products

1 7/„
I /&

z

/. 1

— O.O

U.jj

0

8 1
0.0

o

West Chemical Products/c/xw/ov/S

13/

A

4

it a
—0.0

U.o4

1 1

A O

4.y

o

Essex Qotpl industrial services

3%

4

-6.3

0.50

8

4.2

a

Meenan Oil/fuel oil distributor

5%

6Vs

-6.1

0.31

19

4.9

14.2

a

Liberty Fabrics NY/apparel

7%

8'/4

-6.1

1.80

4

—

6.7

o

Meyers Parking Systems/industrial services

13/.
/ 74

0 74

—0. 1

U.jo

■) 2

Q 7

y . /

n

Union Commerce /bank ho/ding

1 Q3/

T 1
L 1

— O.U

1 1Q
1 .OD

1 c

lo

1 n
1 .U

7C c

o

Optimum Holding! insurance

8

8'/2

-5.9

1.26

6

10.6

a

Alba- Waldensian/czppr// vl

4

4'/4

-5.9

0.52

8

1.3

5.4

o

Carhart Photo//)7w processing

2

2'/8

-5.9

0.80

3

—

1.2

o

Guli Interstate/w/.swe'.'tf services

Q

Q 1/
0 72

c 0

— b.y

u.yz

0
y

0.0

1(3.1

o

Keane/computer sen ices

A

4

A 1/
4 74

—b.y

r\ AO
U.40

Q

0

b.U

2 /I
0.4

o

Te a m let ierg\ 1 set 1 ices

4

4,/4

-5.9

0.88

5

7.9

n

Harcourt Brace Jovanovich/pi^fc/j/;;^

WA

15

-5.8

1.91

7

7.1

124.2

o

Eldorado Bancorp QaMilbank holding

8%

8%

-5.7

1.34

6

—

10.7

a

Graham Mtg/ industrial equipmetit

078

O 7/

0 78

— 3.6

1 <7
1.0/

5

1 Q
O.O

7 1

r .1

o

\&ux\\\w.gl electronics

Z'/8

0 1/
Z'/4

r ✓
— 3.0

n 1 £

U. 1 D

1 A
1 4

1 c
1 . D

o

Equity Oil/o/7 & gas explor & dev

8'/2

9

-5.6

0.38

22

2.4

100.2

o

Oil Securities/o/7 & gas explor & dev

2'/8

2'/4

-5.6

0.02

NM

17.4

o

Scientific Inc/ industrial senices

8>/2

9

-5.6

1.03

8

11.4

o

Bluefield Supply Icotistruction equipment

9

9'/2

-5.3

0.43

21

6.7

11.3

o

Rexco Inds/constructioti

4Va

4%

-5.3

0.29

16

4.1

a

Scientific Leasing/health care services

9

9'/2

-5.3

0.53

17

12.8

o

Scientific Radio Systs/ te/ecomm equipment

4l/2

4%

-5.3

0.37

12

0.9

4.6

a

Superior Gaxd health care services

2%

2%

-5.3

0.09

25

16.5

a

TEC Inez 'computer equipment

9

9Vi

-5.3

0.48

19

0.9

7.4

a

UNA Cotplsteel distributor

■ 2%

2%

-5.3

TX02

NM

1.8

0

McM Corp/ 'insurance

6%

7'/4

-5.2

0.04

NM

3.5

32.1

<*ank of New York/bank holding

39 'A

41%

-5.1

9.90

4

8.2

282.2

o

miU i Group/bank holding

23 Vi

24%

-5.1

5.49

4

6.6

27.5

o

Fabric WhoIesalers//rt/?m~ retailing

9V*

9%

-5.1

1.20

8

2.7

5.1

n

Federal Colfood processing

21 %

22%

-5.1

2.14

10

6.2

173.1

a

IVewcor Inc/ 'industrial machinery

11%

12%

-5.1

2.14

5

3.4

22.1

o

L -iputer Task Gioupl computer services

9Vl

10

-5.0

1.02

9

0.5

13.1

o

Jacl ot Enterprises/recreation

2%

2%

-5.0

0.25

10

5.7

a: Amenc

1

in Stock Exchange, n: New York Stock Exchange, o:

over-the-counter market

N.M: Not meaningful

Source Wilsbire

Associatei

246

FORBES, OCTOBER 11, 191

Drs, the size of these issues has
ced against them. When profes-
ils want to move into the market
they have to buy big companies,
only a handful of companies on
ist are closely followed by Wall
it analysts. So these weren't the
<s that brokers were pushing
n customers started asking what

New issues, too, are abundant on
our list. At least 65, or 23%, are
stocks that were listed either in 1981
or 1982. For example: Superior Care, a
health care services company, and
Quixote, a manufacturer of highway
safety products. Another interesting
point: Of the 38 stocks that lost 15%
or more in value, almost half are
fledgling companies. The speculative

nature of many of these firms and the
severity of the recession may have
encouraged some investors to bail out
during this rally in favor of large cap-
italization stocks.

While the price-to-earnings multi-
ple of the more than 5,000 stocks
tracked by Wilshire Associates is 9.6,
over 155 of the firms on our table are
selling at less than 9 times earnings.

Losers today, winners tomorrow?

Market

Price — Latest 12-month — capitaliza-

lange Company/business recent 8/16/82 % change EPS P/E Yield tion (mil)

o

Machine Technology 1 electronics

2%

2Vi

-5.0%

$0.07

34

$ 8.5

o

Recoton Corp/ 'entertainment

2Ve

2Vi

-5.0

0.38

6

2.0

a

Chicago Rivet & Machine/ industrial equip

12'/4

l2Vs

-4.9

0.44

28

13.1%

9.1

o

Cochrane Furniture//«m//»/-e

5

5V4

-4.8

1.21

4

2.0

3.2

o

Commercial Shearing/consiructiori equipment

10

10%

-4.8

1.44

7

6.2

95.9

o

Interchange State Bk N]/bank holding

10

107>

-4.8

1.56

6

9.0

4.7

a

Plant Inds/ 'containers

2Vi

2%

^.8

0.31

8

9.2

a

Pneumatic Scale/packaging equipment

15

15%

-4.8

1.09

14

6.7

8.5

a

Volume Merchandise/fl/ywre/ retailing

5

5^4

-4.8

2.52

2

3.4

5.9

n

South Jersey Inds/natural gas utility

17%

18%

-4.7

3.08

6

12.3

46.1

o

Wei b i 1 1 /hot isebold products

15'/4

16

-4.7

4.27

4

7.5

o

Commercial Decal/ 'household products

5%

5%

-4.6

0.84

6

6.5

o

Flame lads/oilfield equipment

2%

2%

-4.6

1.14

2

—

3.0

o

Swift Energy/o/7 c~ gas explor & dev

2%

2%

-4.6

0.06

NM

—

7.5

n

Universal Leaf Tobacco/A >hacco

26

27'/4

-4.6

3.93

7

6.3

226.4

a

Barco of California/r/ppe/re/

274

27/s

-4.4

0.17

16

4.4

5.8

o

Vacu-Dry /food processing

2%

27/8

-4.4

0.46

6

6.2

3.9

n

Pacific Tin Consolidated/we/rt&

ll>/4

11%

-4.3

0.27

NM

3.6

12.2

n

BankAmerica Corp/bank bo/ding

17>/8

177/«

-4.2

2.99

6

8.9

2,527.9

o

Familian Corp/ industrial equipment

27/8

3

-4.2

0.22

13

—

3.0

o

Optelecom/ telecom mm tici ttioi is

27*

3

-4.2

0.06

NM

8.1

o

Peerless Chain/ metal fabricating

11 72

12

-4.2

1.53

8

7.7

19.2

o

United Sts Mutual Inv TilRElT

5%

6

-4.2

1.02

6

10.4

18.9

o

Energy Conver Devices/energy equipment

17%

18'/2

-4.1

0.25

NM

—

52.7

o

Independent Bankshates/bank holding

11%

12'/4

-4.1

1.47

8

2.6

30.0

a

Southeastern Capital/////c/»ce

8%

974

-4 .1

1.56

6

19.7

6.1

a

Speed-O-Print Bus Machs/q//7ce equipment

3

3%

-4.0

0.17

18

3.3

4.2

a

Wadell Equipment//«rt(/>/w tools

3

3Vs

-4.0

0.09

33

—

2.6

o

Aztech Intl Ltd/heating equipment

3Vs

3%

-3.9

0.08

NM

. —

4.9

a

Bowl Amencalbou ling centers

6'/s

6%

-3.9

1.12

5

6.0

8.2

o

Electro-Catheter Corp/medical equipment

6'/4

672

-3.9

0.48

13

7.3

n

Empire District Electric/cVetVr/c utility

12 Vi

13

-3.9

1.88

7

12.2

57.0

o

Frequency Control Prods/ 'electronics

3>/s

3%

-3.9

0.14

22

11.2

o

Great Amer Mgmt & ln\/real estate

6>/8

6%

-3.9

1.16

5

45.6

o

Miller Tech & Commun/ industrial services

6'/4

6'A

-3.9

0.35

18

10.3

o

Transworld Bank Ca\iill>ank holding

6%

672

-3.9

1.33

5

4.7

o

Tti-Chemlbousehold products

6%

6'/2

-3.9

1.12

6

3.3

6.8

a

Aero-Flow Dynamics/e/ec7/vcY(/ equipment

31'/2

3274

-3.8

6.15

5

2.4

19.7

o

Early California Inds/food processing

6%

6%

-3.8

0.24

27

16.5

n

Mattel/ toys

13

13'/2

-3.7

2.79

5

2.3

216.5

n

Chicago Milwaukee//»/////cow/)cY>/r

47 Vi

49%

-3.6

1.22

NM

116.5

a

Concord Fabiicslapparel

3¥s

3Vi

-3.6

0.74

5

6.0

o

Jacobson Stores/ 'retailing

13 '/2

14

-3.6

1.08

13

3.7

13.1

n

Manufacturers Hanover Tx/banking

26%

27%

-3.6

7.79

3

11.0

919.9

a

Michael Baker Corp/ 'consulting services

6%

7

-3.6

0.61

11

2.4

6.2

o

Quixote Corp/ 'transportation equipment

6%

7

-3.6

0.49

14

9.3

o

Ripley Co/ 'electronics

6%

7

-3.6

0.58

12

3.0

4.0

a

Crest-foam/sf lecia/tv chemicals

3Vi

3%

-3.5

0.76

5

2.9

4.5

o

Intercontinental Life/ insurance

6Vb

TVs

-3.5

2.09

3

2.6

6.6

a

Spencer Cos/footwear, apparel

7

7'/4

-3.5

0.39

18

1.1

13.3

mericun Stock Exchange, n: New York Stock Exchange- o: over-the-counter market. NM: Not meaningful Source Wik/.we Associates.

IES, OCTOBER 11, 1982

247

Statistical Spotlight

Note, too, that only a few of the
stocks with the biggest price depreci-
ations are currently paying dividends.
Overall, about 20% of the stocks in
the table yield 5% or more.

So far, of course, Wall Street has

neglected these stocks despite posi-
tive earnings and an assortment of
bargain basement multiples. It could
just be that buried among Atlan-Tol
Industries, Peek N Peak Recreation
and scores of other less-than-house-
hold names, there lurks the next IBM
or Polaroid.
Then, too, if you happen to find a

gem or two on these lists, it often
doesn't take much in the way of good
news for a low-priced small-capital"
ization stock to make a significant up
side move.

But remember this: Today's market
is very different from that of 1974, so]
there is no guaranty that history will
repeat itself. ■

Losers today, winners tomorrow?

-Price-

Exchange

Company /business

recent 8/16/82 % change

-Latest 12-month —
EPS P/E

Market
capitalize-
Yield t ion (mil!

o

St Louis Steel Casting/.s/cv/

7

7%

-3.5%

$3.16

2

2.9%

$ 2.1 1

a

Tasty Bakinglfood processing

7

7%

-3.5

0.46

15

18.2 1

o

Fiduciary Trust Co NY/finance

A 1

A A 1 /

44 vi

—6 A

0.0U

7

/

7 A

I A

18.9 j

Q

First Bancorp RfR/hanfe holding

28 Vi

29 'A

-3.4

6.29

5

6.3

18.0 ]

L aser Inds Ltdlmedical equipment

7'/s

7%

-3.4

0.06

NM

21.9 |

o

Rocky Mountain Nat Gas/ '; laiural gas utility

7Vx

7%

-3.4

0.77

9

7.9

8.0

o

Monf ort of Colorado//oo<7 processing

7lA

7'/2

-3.3

2.10

3

35.5 j

o

Motor Club of America/ insurance

71/

IV*

71/

fvl

1 1
—0.0

n no
U.Uv

INM

1 A

1 .4

17 1

1 1 .1

Seaboard Corp/ food processing

25%

26%

-3.3

3.95

6

2.0

37.9 1

Three D Departments/^/yMrtV retailing

7%

7V2

-3.3

1.62

4

3.3

8.1 1

O

Begley Drug Col drugstores

7Vt

7V*

-3.2

0.40

19

9.1

4.3 I

0

Bell Petroleum Services/ 'oilfield services

3%

3%

-3.2

0.77

5

8.7 I

o

Chesapeake Utilities/natural gas utility

Id

1 CI/

Id Vi

—6.1

d.yo

4

1 n 7
1U. f

7.2 1

ICH Cotpl insurance

15%

157/8

-3.2

3.01

5

1.3

45.1 1

o

Time Sharing Resources/ctimpuier services

7'/2

7%

-3.2

0.85

9

8.6 ]

a

IMC Magnetics! i>idustrial machinery

11%

12

-3.1

2.07

6

2.4

10.3

o

Penn Virginia Corp/coal mine royalties

31

32

-3.1

3.20

10

4.8

116.9 |

o

Stocker & Yale/ precision instruments

71/

0
0

1 i
— 6.1

1 A A

1 .44

r

D

1. 1

7 1 1
1 .1 1

0

Tellabs Inc/ telecommunications equip

15%

16'/4

-3.1

1.20

13

97.3 |

a

CDI Corp/ industrial services

8%

8%

-3.0

2.19

4

16.1 I

o

Continuum/computer software

16

I6V2

-3.0

1.09

15

1.3

26.2

o

Gulf Nuclear/specialty chemicals

4

4'/8

-3.0

0.20

20

0.5

10.2 1

o

Vagabond Hotels//»o/f/.<

1 o

16 VI

— 6.U

6. Id

c
D

1 c n i

iD.y t

o

Emett & Chandler Cos/insurance

8V4

8'/2

-2.9

0.67

12

15.0 j

Q

Imperial BancoTplt)anl> holding

8 1/4

8 1/2

-2.9

2.14

4

61.6 •

o

McRae lads/footwear

m

8%

-2.9

1.24

7

3.8

10.5

o

Paul Mueller Col industrial machinery

i6'/2

17

-2.9

1.56

11

10.3

19.3

o

CR Gibson/publishing

8'/2

8%

-2.9

0.84

10

3.3

10.8 1

o

Security Life Ins GAIinsurauce

17

17'/2

-2.9

1 .09

16

4.7

31.2

o

Tony Lama> footwear

17y4

1 7%

-2.8

3.60

5

4.6

40.1

o

American States Life \nsl insurance

17%

18

-2.8

3.13

6

4.6

38.1

o

Hungry Tiger i 'restaurants

8%

9

-2.8

1.06

8

—

14.5 |

o

Swedlow /plastics

9

9%

-2.7

1.38

7

2.2

11.2 ]

a

Contock/sand & gravel

13%

14

-2.7

0.82

17

4.4

54.4 i

a

Mangood Corpl industrial equipment

13%

14

—2.7

1.68

8

4.3 i

o

Jefferson Natl Life/ 'insurance

36 Vi

37'/2

-2.7

4.20

9

2.1

48.4

a

O EA/aei vspace

23

23%

-2.7

1.78

13

1.1

31.2

n

Emerson Radio/electronics

14

14%

-2.6

0.01

NM

69.6

0

Protective Corp/ insurance

19%

20

-2.5

3.49

6

5.7

97.6 ,

o

Alpha Microsystems/(.ow/>///tr equip

5

5 '/a

-2.4

0.45

11

13.2

o

Colonial Gas/gas utility

10

10 '/4

-2.4

1.33

8

14.4

20.4

n

Fisher Foods/^roce/T stores

10

10%

-2.4

1.38

7

7.0

49.7 '

n

Mohasco Carpi furniture & carpeting

10

10 '/4

-2.4

1.18

8

65.8

o

TeXeConceptsI telecommuu equip

20

20 %

-2.4

0.83

24

21.2

o

Dart Drug/ 'drugstores

15'/4

15%

-2.4

2.57

6

0.9

25.0

Glassrock Med Svs/ 'healthcare sys

20%

207/*

-2.4

0.94

22

0.5

112.5

n

Foxteclrailroad equip

] 0%

10%

-2.4

1.49

7

7.7

39.6

o

Jefierson Bancorp/bank ho/ding

10'/2

10%

-2.3

3.61

3

14.4 1

n

Galveston Houston! oilfield equip, svs

157/8

16%

-2.3

3.22

5

3.3

90.1

o

Spectru m Control/tVcjc7ro;7/cs

5%

5%

-2.3

0.32

17

0.9

28.5

o

United Bankers! bank holding

103/4

11

-2.3

1.86

6

0.5

27.5 1

o

Networks Elecironic/«tro.sp«ce

5'/2

5%

—2.2

0.30

18

12.8

a. American Stock Exchange a New York Mock Exchange, o: over-the-counter market NM Not meaningful Source: Wrtshtre AssociaU

248

FORBES, OCTOBER 11, 1982

Your legacy: A way of life.

du love the wide open spaces? Clean air? The beauty of
e? Are they a part of the legacy you have planned for
loved ones?

vning a large piece of land in America is possibly the
important decision you will ever make. Not only will
injoy the rare privilege and pleasure of owning sizable
iland today, it can remain a private corner of America
e future history of your family. Forbes Wagon Creek
h is offering just 404 people the unusual opportunity
rchase a sizable spread of land right next to its gigantic
ss Trinchera Ranch in southern Colorado,
nimum-size family ranches are 40 acres, and vary up
acres, with prices starting at $25,000. Down payment
low as 1% with monthly payments of $250 including
ist at 9% .

Here in the foothills of the magnificent Rocky Mountains,
with restricted access to more than 17,000 acres (over 26
square miles), you can hunt deer, elk, grouse, and all kinds
of wild game in season. Or you can ski cross country, fish
for trout, ride horseback, or just enjoy the breathtaking
dawns, sunsets, and the changing seasons in the shadow of
one of Colorado's highest peaks, Mount Blanca.

This exclusive preserve is the perfect place for the out-
door-lover in you, and when passed on to your children, or
your grandchildren, your ranchland bestows on your heirs
the privilege of an unspoiled way of life. Its a very thoughtful
way to shape the futures of those who will follow you.

For more information on how you can become a part of
Forbes Magazine's private mountain hideaway, write or call
for our full-color brochure.

ORBES WAGON CREEK RANCH

Errol Ryland, Manager Box 303 K Fort Garland, Colorado 81133 (303) 379-3263

Sangre de Cristo Ranches Inc . developer This is not an oiler to sell in states where not registered NJA104-0482CO NAV820068 000039-A AD18560(b)
nent and offering statement has been filed with the Secretary of State of the State of New York The filing does not constitute approval of the sale or lease or ofler for sale or lease by the Secretary of
2 or that the Secretary ol Slale has in any way passed upon the merits ol such offering A copy ol the offering statement is available, upon request, from Sangre de Cristo Ranches Inc NYA82-78

Obtain the Property Report required by Federal law and read it before signing anything.
No Federal agency has judged the merits or value, it any, of this property. Equal Credit and Housing Opportunity.

When managers take over a company, lots
of people win — unless earnings cant cov-
er interest payments. Then losers line up.

Off-balance
leveraged
buyouts?

By Thomas O'Donnell
with Jay Gissen

1EVERAGED BUYOUTS USC(J tO be
_ safe, small and sure," says one
I dealmaker. "Today some are
too damn big and dangerous."

He's talking about those deals, so
popular with investment bankers, in
whieh managers become owners by
putting up very little money. A com-
pany's assets become collateral to
borrow 80% or more of its purchase
price, while operating earnings pay off
the debt. "It's simply commercial real

estate finance applied to corpora-
tions," says the dealmaker.

True enough. And look at what has
happened to real estate recently. The
worry now is that a combination of
high interest rates and falling infla-
tion may cause some big, highly lever-
aged buyouts to go bust.

Indeed, some deals are already rais-
ing eyebrows. Take Norns Industries,
which was taken private late last year
for $420 million. Because its oper-
ations are heavily tied to the construc-
tion and automotive industries, Nor-
ris is hit hard by the recession. So is

Gould Inc.'s industrial produu
group, which was spun into a shell!
Reading Railroad. Both companj
have seen tough times, and ot
Gould's old industrial products groi
has sold assets to pay down debt.

Donnkenny and Brentano's are
even worse shape. At Donnkenny
maker of women's apparel, one per
ing lawsuit alleges that the font
owner-managers skimmed profii
bringing lenders and venture capit
ists up short. Brentano's, meanwhi
was a victim of the recession a
competition from discounters. Whi
its book sales took a beating, the 1
year-old company was unable to
payments on the short-term portij
of its S13 million in debt.

All this shows that success)
buyouts take two things: good ma
agement and sufficient cash flow
pay off sometimes crushing de
loads. These elements are most ofti
found in smaller deals — where swe
equity really counts. "The belief trj
bigger is better just does not apply
leveraged buyouts," says Jay Jordan)
veteran dealmaker who has put 1
gethcr 25 small and medium-size Id
eraged buyouts over the last decao
"Economics of scale here wc
against you, not for you."

Why? To take big companies-
divisions spun off from big comj
nies — private, public shareholders jj
premiums of 30% or 40% above C
market price. "The increased debt ;
creases the business risk a little ai
the financial risk enormously," sa
lordan, who predicts that sevei
"megabuck" buyouts could soon e;
in a bust. "This is a subjective, pfl
ple-onented business not usually a
propnate for the S200 million a
$400 million deals now being strui
together."

To avoid disaster, some leverag
buyout packagers have bet on cont:
ued high inflation or constantly risi
earnings. That gamble may ha
made good sense in years past, but r
today, with inflation falling and a
cession battering profits. "High inf
tion is great for these deals," says Jo
Canning, president of First Chica
Investment Corp. "But now we ha
high interest rates and stable prices
double whammy."

The collapse of a major leverag
buyout would slow dealmaking tc
trickle — by scaring potential lende
Some have already stopped playh
Prudential Insurance, which pionc
ed institutional buyout financing di
ing the 1960s, has rejected lots of t
loan requests it has seen over the k
year. Similarly, Massachusetts Mul
al is steering clear of the biggest deai

250

FORBES, OCTOBER 11, 191

till, there's no shortage of money,
iks have moved in to fill the gap
by insurers. Banks have also added
atility, in the form of floating-rate
ns rather than the traditional
;d-rate financing of insurers. In ad-
on, some bank venture-capital
isidiaries, eager to build portfolios,
doing deals on which more experi-
:ed lenders have taken a pass.
)ther new financing for leveraged
routs comes from brokerage firms.
iy? "They are buying in on the sex
ieal of the deals," says an insurance
cutive. A few Wall Street houses,
vever, have played the game for a
g time and know how to play it
11. First Boston, for example, put
ether one of the first "megabuck"
Is: Congoleum. That $465 million
rout — with the initial stock offer at
Yo above market price — was conser-
ive. Debt totaled $332 million, a

moderate 73% of the company's cost,
and there was an added $50 million
back-up credit line. Most financing
was at a fixed rate.

Other Wall Street dealmakers have
not been so conservative. According
to critics, some big deals put together
by investment bankers have been
poorly structured, involve troubled
companies and are overpriced. Most
worrisome: In at least one case, the
ratio of earnings to interest is less
than 1-to-l. A far safer and more con-
servative ratio is for earnings to ex-
ceed interest by 2 or 2.5 times.

The profusion of leveraged-buyout
dealmakers, of course, means that
more deals will be attempted in com-
ing months. "The natural result will
be higher prices," says Timothy Hay
of Security Pacific Capital Corp. "But
the more money you pay, the less
viable a leveraged buyout becomes."

If a big bust does occur, the real
losers will be those venture capital-
ists, usually bank subsidiaries or inde-
pendent firms, that have taken subor-
dinated debt. It offers higher yields
and equity kickers, but subordinated
creditors line up after senior creditors
in bankruptcies.

Over four years ago, Forbes said
this about leveraged buyouts: "Like
all investment trends, this one will
eventually be carried to excess. In
their greed, investors, lenders and
brokers will start reaching for margin-
al deals. Other brokers will find a way
to bring the public in at an early stage,
when the risk is still high. There will
be failures and scandals and big loan
losses, and the whole game will get a
bad name. But that day is still a long
way off."

The question now: Is that day closer
than we realize? ■

Q • Which insurance broker will do
your comoanv a world of aood?

A. Rol

R.BES, OCTOBER 11, 1982

251

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Capital Markets

7hy are things going haywire in a lot of
jusing revenue bonds? Some theoreti-
%l assumptions are being proved wrong.

READ THE
FINE PRINT

By Ben Weberman

lot of money has been raised by
te, county and local housing au-
)rities — $24 billion in tax-free
ids from 1979 to the present — to
ance residential mortgages at be-
v-market interest rates. Serious
>blems have arisen in several of
:se issues. More problems are
ely. Everyone holding tax-
;mpt, single-family housing
irtgage revenue bonds would be
se to read the fine print. Take
:cial note of the assumptions
ide in the prospectus about mort-
;e repayments and prepayments
i about any arbitrage profit pro-
ted on the borrowing agency's in-
>tment of cash reserves and cash
oat." In a distressingly large
mber of cases, those assumptions
: not holding up.

n theory, the maturity schedule
these tax-exempts should match
| interest and repayment sched-
:s of the funds put out as mort-
is. In fact, a lot of bond issuers
: finding that the money is just
t coming in fast enough to meet
;ir debt service. The agencies are
ambling to cover interest pay-
:nts plus mandatory redemption
the debt required under sinking
id and maturity schedules.
Why are things going haywire?
day, with the housing market all
t dead, the stream of mortgage

x Weberman is economics editor of
rbes magazine.

principal prepayments has slowed
to a trickle. As that happens, the
amount of cash received by the bor-
rowing authority falls short of the
sum needed to meet sinking fund
retirements spelled out in the origi-
nal borrowing agreement.

Assumptions about investment
return are another problem. Many
of the issues came to market when
short-term interest rates were in the
15% to 20% range and long-term
U.S. Treasury issues paid up to
15%. As this is written, short-term
investments are paying 10.5% or
less (three-month Treasury bills
yield only 8%) and bond yields are
about 12%. Most tax-exempts to
subsidize residential mortgages
were sold on the assumption that
money raised at lower tax-free inter-
est rates could easily be reinvested at
a higher yield — in effect, arbitraging
the capital raised. Rates have fallen
so far that new investments may not
draw enough interest to yield any
profit, much less exceed IRS limits
on arbitrage profits.

No housing authority has yet de-
faulted outright on a scheduled re-
demption or missed an interest pay-
ment because of a cash squeeze. But
the strain is showing in other ways.
Many investors in high-interest
bonds over the past two or three
years are seeing these issues re-
deemed faster than was forecast in
the offering circular. Others who pur-
chased low-interest bonds in the be-
lief they would be called for redemp-
tion in a few years are stuck with
these bonds for many years to come.

Hardest hit in many cases are
those parts of mortgage revenue
bond issues that had been sold as
"supersinker" bonds. Such securi-
ties have been a favorite of local
authorities in recent years. The pur-
pose was to reduce the overall net
interest cost of the borrowing. Even

MONEY & INVESTMENTS

though the supersinker shows a
stated maturity of 20 years or so, the
issuer would covenant that all pre-
payments of mortgage principal
would be used first to redeem these
particular bonds. In most cases, the
average life expectancy of super-
sinker bonds ranged from four to six
years. Other long:term bonds in the
same borrowing were expected to
have lives of about 20 years.

When Shelby County, Tenn.
came to market for $150 million in
May 1980, the debt was structured
with a $14 million portion, listed
for 2011 maturity, that was to be
redeemed first with all proceeds of
mortgage prepayments — a super-
sinker. Because of their special sta-
tus, the interest coupon on them
was only 8%. It appealed to short-
term investors. That 8% return was
greater than those on serial bonds
scheduled to be redeemed in four to
six years, which carried only 6.25%
to 6.55%.

Since that sale, however, mort-
gage prepayments have fallen sharp-
ly. Investors who bought the super-
sinker in expectation of a high re-
turn over a short life span are,
instead, getting a low return for a
long life span. At the same time,
some investors who thought they
had bought long-term bonds have
ended up with medium-term, losing
investments.

A case in point: Flush with cash
from foreclosures and high yields on
its invested cash, Shelby County
has purchased at a discount its own
high-coupon bonds.

State housing agencies have not
resorted to the supersinker tech-
nique, but their bondholders have
faced problems, anyway. When the
Indiana Housing Finance Authority
raised $ 1 50 million in June 1 980, the
debt pattern assumed that mort-
gages would be prepaid at 60% of the
FHA experience. "If prepayments
occur at a rate lower than 60% of
FHA experience," the prospectus
warned, "revenues could be insuffi-
cient to pay debt service on out-
standing bonds." Well, prepayments
have been below that rate. The au-
thority's answer has been to borrow
$75 million this year through an
issue having full parity with the older
one. (The latest issue assumes 0.0%
prepayments.) In effect, the cash-
flow problem has been solved by
taking on additional debt. ■

>ES, OCTOBER 11, 1982

253

Psychology & Investing

Computer literacy isn't just for hobbyists
and engineers anymore. Spend a few
minutes learning about the life-changing
machines via the world of restaurants.

THIS WAY, SIR

By Srully Blotnick

ft »*

If you have ever been in an expen-
sive French restaurant or a budget-
priced Chinese one, you can under-
stand how a modern digital com-
puter works.

Digital computers don't speak
English, French or Chinese; they
speak binary — that is, all they un-
derstand is zeroes and ones (actual-
ly, high or low voltage). Suppose
the owners of the two restaurants,
which are side by side, want to
save money, as well as eliminate
favoritism, thanks to tipping at the
door. So they replace their maitre
d's by small computers. Now the
question is, how should the com-
puter decide whether or not to seat
someone at a particular table? The
answer depends on the kind of res-
taurant it is.

To enable the computer to "see,"
suppose sensors are put in the floor
that signal "1" when someone
stands on them and "0" otherwise.
The entranceway to each place is
big enough to hold two people at a
time. Let's also assume that all the
tables in both restaurants have only
two chairs.

When there are two people in the
entranceway, the sensors will signal
a pair of Is. A 1 and a 0 mean there
is only one person there. And two 0s

Dr. Srully Blotnick is a research psychologist
arid author oj Getting Rich Your Own Way
and Winning: The Psychology of Successful
Investing.

mean no one is waiting.

If no one is standing in the en-
trance foyer, then a pair of 0s as
input signals should produce an
output signal that is also 0. If a pair
of people arrive at either restaurant,
the computer should signal them to
go ahead and be seated at a designat-
ed table. That is, a pair of Is as input
signals to the machine should pro-
duce an output signal that is also a
1. Simple enough.

It is when one person arrives
alone that the situation becomes a
bit more complicated. What should
the machine do?

At the French restaurant, some-
one who seeks to dine alone may
not get in. Why? Because one per-
son at a table takes it out of
commission. The entire table is
essentially occupied. So a 0 and a 1
at the entranceway of the French
restaurant produces a 0 from the
machine — that is, a "stop, we can't
seat you." At the Chinese restau-
rant, a 0 and 1 as inputs produce a
1 from the machine — that is, "As
long as there's an empty seat
somewhere in this joint, you'll be
served."

The situation at the French res-
taurant can be summarized by the
following chart:

A

B

c

0

0

0

0

1

0

1

0

0

1

1

1

It's easy to read — just read it one
row at a time. A and B are sensors,
and when someone stands on them,
they light up with a 1. C, the third
column, is the yes or no. A 0 means
no table is available. A 1 means yes,
you have a table (or in the Chinese
restaurant, at least a seat, perhaps at
a table with other people).
The situation at the Chinese res-

taurant can be summarized by th
following chart:

A

B

c

0

0

0

0

1

1

1

0

1

1

1

1

Note that the only difference b<
tween this chart and the one abov
it occurs in rows 2 and 3. The diffe
ence is no minor matter, thougl
since it tells you whether you wi
get into the restaurant.

A chart such as this is usual]
called a truth table. However, at th:
stage you can learn more about th
operation of digital logic circuits b
thinking of the chart as "the trut
about the table."

The first table, the one summ;
rizing the situation at the Frcnc
restaurant, is called an AND gat
Why? Because the computer, whic
is acting as a gate, determining wh
gets in and who doesn't, wants yo
and someone else there before
will admit you. The second char
the one summarizing the situatic
at the Chinese restaurant, rcpn
sents an OR gate, because if eithi
you or someone else (or both)
present, you can go on in.

These gates are so important I
the operation of computers and a]
pear so often in the circuit diagran
of the insides of these machine
they have their own symbols:

;^r>' j^t>^c

An AND gate 4.V OR gate

The difference between the tw
symbols is that the AND gate
shaped like a beer belly, the OR ga
is shaped like a bra. As microele
tronic devices and circuitry becorr
more widespread, you will see syn
bols like these increasingly.

The computers we come inl
contact with in our everyday livi
make extensive use of these gate
Take automated bank tellers, for e:
ample. How does the computer d
cide whether to give you the cas
that you request? First, you fee
your bank card into the machin
Then, if there is enough money i
your account AND the number c
the card matches your accoui
number, out come the nice cm
bills you wanted.

Here, the card is being used as
key. When you stick a key into
lock, every notch in the key mu

254

FORBES, OCTOBER 11, 1

Aggressive

investors,
take your pick.

ONEY & INVESTMENTS

1 one of the tumbler pins. And
you use a plastic card as a key,
thing must match in this in-
2, too, even though it's plastic
id of metal. You wouldn't
someone who gets only part of
formation right to gain access
ur house or bank account. In
it is an AND gate. Think of
ink machine as the maitre d' of
tch restaurant.

3ther major applications, for
ice, a computer that is moni-
; an industrial manufacturing
ss for errors, OR gates are
important. When the produc-
rocess begins to go awry, even
le error in the sequence should
jught to someone's attention.
:re are two steps in the se-
:e, A and B, the computer
d inform you if either one OR
ther starts to screw up. Both
shouldn't have to fail before a

is sent. This is analogous to
)st of a Chinese restaurant.
:e that the situation, then, is
y the reverse of the one at the

There, we want the transac-

0 go through only if everything
rder. Here, we want a warning
to be issued if anything is out

ier — and we want to know
and where it is. (We wouldn't

that to happen at the bank
a thief would then know what

in order to make the fraudu-
ransaction go through.)
: logic systems in computers
>mbinations of AND and OR
etched into tiny silicon chips,
tear a lot about integrated cir-
— in particular, LSIs and VLSIs.
ou will be hearing a great deal

about them in the future,
you understand even a little

gates, there's no longer any

1 to be intimidated by the
pt of an integrated circuit.
51 (large-scale integrated) cir-
s a chip that contains any-
: from 100 to 1,000 gates.

(very-large-scale integrated)
ts are those that contain

than 1,000 such gates. Each
s simple, but working togeth-

a chip, they can be made to
e quite sophisticated tasks,
ddition to AND and OR gates

are also NAND and NOR

They are the ones computer
eers actually care most about.

issue we talk about these —
ime, in terms of "the truth

tables" in a singles' bar. ■

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Address

State

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Group under management.

S, OCTOBER 11, 1982

255

Acorn
Fund

Observations

WE INVITE YOU TO EXAMINE

Our 12 Year
Performance Record!

Write for free prospectus for more complete
information, including management charges and
expenses. Read it carefully before you invest or
send money.

Name

Zip

THE ACORN FUND, INC

120 S. LaSalle St.

Chicago, IL 60603

(312) 621-0630

F-10-82J

jog your mind

run to your
library

American Library Association

N.Y Times

RISTORANTE
ITALIANO
LUNCH & DINNER
Amer. Express &
Diners Club
251 E. 53rd Street
(Bet. 2nd& 3rd Aves.)
N YC. 753-8450-1

No use pretending sovereign nation,
never default. The fact is tens of billion
in international loans are gone forever

INTERNATIONAL
FALLACIES

By Ashby Bladen

Newspaper reporters have at last
discovered the international crisis
that more perceptive observers have
been watching develop for many
years. Ominous analogies are now
being drawn with the financial cri-
sis that occurred half a century ago,
raising the fear that many countries
may be about to repeat the national-
istic, beggar-my-neighbor mistakes
that were largely responsible for
turning the slump of the early 1930s
into the Great Depression. The
Mexican president's xenophobic re-
action to the run on the peso shows
that those fears have real substance.

In the current crisis, as in the
crisis of the 1930s, excessive opti-
mism is a villain. The new era of
international cooperation through
the League of Nations was supposed
to stimulate economic growth and
make most developing countries
more creditworthy than they had
appeared to be in the 19th century.
Now the world has repeated that
mistake.

Excessive optimism has always
been a source of trouble in human
affairs, along with the unreasoning
fear that sets in when it becomes
clear that the optimistic promises
cannot be kept. But the harmful ef-
fects of the optimism-fear polarity

Ashby Bladen « senior vice president for
investments of the Phoenix Mutual Life In-
surance Co. and author of How to Cope
with the Developing Financial Crisis.

can be greatly mitigated by a clel
understanding of the conditions
which people, businesses and go
ernments are likely to be able
repay their debts. The basic princ
pies of finance are the same both
home and abroad.

I cannot repeat too often that ai
borrowing creates purchasing powi|
that we can spend in the present 1
mortgaging the productive effoi
that we will have to make in t
future in order to pay it back. So t
least risky reason for borrowing is
invest in the tools that will ma
our future efforts more products
Any individual or country that be
rows in order to enjoy the got
things of life today is skating ■
thin ice. Young people may want
do some of that anyway, and cou
tries with promising economi
may prudently do the same. B
cautious lenders prefer to see lai
borrowings tied to specific prodi
tive projects. That principle h
been much neglected lately.

The political and economic ]
construction after World War II i
eluded the creation of the Interr
tional Monetary Fund to ma
loans to countries that were sper
ing more abroad than they we
earning there. In a sense, the IMF
another result of the simplemind
Keynesianism that I have criticiz
in other contexts. That is the noti
that the besetting problem of mc
ern economies is a persistent sho
fall of demand, which then leads
' the conclusion that stimulating (
mand is always a good idea rega
less of what it gets spent on a
regardless of what burdens it crea'
for the future.

The IMF does require that coi
tnes that are getting too deeply ir
hock change their policies. It wai
them to encourage saving and
vestment in productive assets, ra

256

FORBES. OCTOBER 11.

Value Line Pinpoints.

DOUI

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257

support our colleges!

By Richard B. Hoey

I make a distinction among three
aspects of a financial crunch. First,
there is the rate crunch, reflected in
extremely high interest rates. Sec-
ond, there is the availability crunch,
or true credit crunch, as the avail-
ability of credit to a wide variety of
borrowers is restricted. Finally,
there is what I have named the risk
crunch, as a growing number of
weak borrowers face defaults and
bankruptcies.

We have not had a full-scale cred-
it availability crunch since the
spring of 1980. But we had a pro-
longed rate crunch until the last few
weeks. That rate crunch finally pre-
cipitated a widening risk crunch,
which has persisted, even after in-
terest rates declined. Borrowers
who have defaulted or where de-
faults have been widely feared in-
clude Braniff, Drysdale, Bank Am-
brosiano, Lombard-Wall, Interna-
tional Harvester, Alfa of Mexico,
Dome Petroleum, Penn Square,
Mexico, Poland and Argentina. In
addition, investors have become
wary of buying the CDs and Euro-
dollars of some banks.

The job of the central bank in a
risk crunch is not to act as a welfare
agency for stockholders and lenders
whose investments have gone bad
but rather to minimize the degree to

Richard B. Hoey is first vice president, econo-
mist and investment strategist at Bache Hal-
sex Stuart Shields

Market Trends

There are some real opportunities in me
dium-grade bonds. But if you decide U
go in, diversify — and be sure to watch th
underlying common stocks.

RISK CRUNCH

which the failure of insolvent en
ties threatens a wave of bankru]
cies among borrowers who are fq
damentally sound.

The trickiest part of the curre
risk crunch is the potential for a
faults among the countries of t|
world to which the banks are ma;
lenders. These loans are not coll,
eralized, so the banks have no ass<
to sell off if there is a default. And
is also difficult to enforce a ju<|
ment against such borrowers. Finl
ly, these borrowers represent sue!
large portion of the equity of lai
banks that they are able to adq
what we call the "Samson col
plex." That is, "Bail me out, or!
bring the temple of the financ
system down around your ears."

Hidden deep within the recesj
of the world financial system thi
is one antidote that can stabilize
if cooperation among central bail
ers is not enough. The IMF ho
approximately 100 million ounij
of gold, carried on its books at
SDR, about $38 per ounce. At $4
an ounce, the unrealized profit
the IMF gold amounts to about $
billion. It would be larger, exci
that some of it was used as welfi
for the world's poorer countries.

This unrealized profit on the II
gold doesn't clearly belong to ai
one. But it backstops the solven
of the IMF and could provide coll
eral for crisis borrowing if neede«

The recent risk crisis has be
accompanied by a surge in bond a
stock prices. The same thing
curred following the Penn Cent
crisis of 1970 and the Hersts
Franklin National crisis of 191
Short-term interest rates fall shai
ly in the risk crunch, which fe<
through to the prices of other asse
That explains the perversity oi
bull market in the midst of a wo
financial crisis.

258

ONEY a INVESTMENTS

i bull market in bonds began a
ago. Everyone has been so

of the risk of falling bond
> in the event of rising interest
that they ignored the risk of
g income if rates dropped. In-
rs who stayed short now face'a
drop in their income,
e strategy is to extend maturi-

forecast in my May 25, 1981
= s column that the peak in
:erm yields ultimately reached
81 would stand for the next
ry. I still believe that, and
:erm rates should drop a lot
ir for the next decade. On a
■term basis, however, I am not
thusiastic about buying long-
bonds aggressively for imme-
capital gains as I was before
3nd market surged. But inves-
vho need income can extend
rities, recognizing that at high-
ld prices they now have some-
more risk of capital loss and
)otential for capital gains, at
in the short run.
ly can also downgrade if they
reful. Now that the consensus
t the world is so risky that you
d buy only the highest-grade
>, some real opportunities have
:d up in medium-grade bonds.
i are going to be more defaults,
unexpected, so don't buy just
r two bonds. The necessity for
ding the risk by diversifying
ises as you move away from
nment and triple-A bonds,
general, the amount of excess
you can get by buying tnple-B
s rather than tnple-A bonds is
peak near the cyclical low in
rate profits. That's when the
)f bankruptcy is highest. Cor-
e profits are now at their low-
md risk spreads are probably
:heir peaks.

ou go with triple-B bonds, one
o watch is the performance of
ompany's stock. If it's notice-
veak relative to the stock mar-
nd selling at a big discount to
value, it may mean that the
>any's financial condition is de-
ating, but the rating agencies
i't yet caught on. Investors in
um-grade bonds and specula-
n low-grade bonds should con-
selling out if they begin to
ve such weakness in the price
: underlying stock. The odds of
lg out before default are much
aved if you do this. ■

Should you 5pe©»ktgr
invest in commodities?

Should you trade with a firm that thinks in terms of investments instead of
speculation? A firm whose chairman of the board is a former chairman of the
Chicago Mercantile Exchange? A commodity brokerage firm that has specializ-
ed in commodities since 1914? A firm that has second-and-third-generation
descendants of the founder serving as top management? One that has created a
college-level course of advanced studies in commodities trading for its mid-level
employees? An Organization which will this year custom-design in-depth
seminars for people like you who will respond to this advertisement so that they
can bring these special conferences into your reach? Can you believe a company
which- above and beyond customary brokerage services- offers a broad array of
exclusive products? A firm that will gladly share its performance record with
you? One that believes its business is built upon its continuity, stability,
specialization, and tradition? Who believes all of this about R.J. O'Brien &
Associates, Incorporated? Well, for starters, our customers. Some have traded
with us for the past two decades. Then ask our competition . . . they certainly
believe in us. Shouldn't you?

Dear Mr. O'Brien:

I might be a believer in someone who has been in commodity trading since 1914
Send me a set of your four informative brochures that tell me more about your
long-established firm and some of your ideas on commodity spesulat&m
investment.

Name

Occupation

Address

City Sute Zip

Area Code Bus. Phone

Home Phone

□ 1 have . . .

□ 1 have not traded commodity futures.

°HaC)V5Briei\&,
^Vgseciqtes^nc^

Brokers in Commodities Since 1914
550 W. Jackson Blvd
Chicago. 1L 60606
312/648-7300

TOLL FREE 800/621-0757

TAX-FREE INCOME!

FINANCIAL TAX-FREE INCOME SHARES, INC.

A No-Load Municipal Bond Fund

seeking high levels of income
exempt from federal income tax.*

Minimum investment of $1 ,000.
Add in amounts of $1 00 or more.
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Daily dividend income paid monthly.

No withdrawal fees.
No early-withdrawal penalties.
Full liquidity, with shares redeemed
at net asset value.

For details and free prospectus, mail coupon or call Financial Programs. Inc.
Inconlinental U S dial 1/800/525-9831 toll-free In Colorado call 779-1233 collect

4-FO-2-152FR-12

Financial Tax-Free Income Shares, Inc., P.O. Box 2040 ■ Denver. CO 80201

Name.

Address.

State .

Zip.

City

For more complete information, send for free prospectus that explains management fees and expenses
Read carefully before sending money or investing 'Income may be subiect to state and local taxes

IS, OCTOBER 11, 1982

259

Venture Capital

LEGAL NOTICE

STATEMENT OF OWNERSHIP, MANAGEMENT AND CIR-
CULATION (Required by 39 U.S.C. 3685)

1. Title of publication: FORBES
1A Publication No. 156914.

2. Date of Filing: Sept. 24, 1982.

3. Frequency of issue: Biweekly.

3A. No. of Issues Published Annually: 26.
3B. Annual Subscription Price: $33.00.

4. Location of Known Office of Publication: 60 Fifth
Avenue, New York. N.Y. 10011.

5. Location of the headquarters or general business offices
of the publishers: 60 Fifth Avenue, New York, N.Y. 1001 1.

6. Names and complete addresses of Publisher. Editor,
and Managing Editor. Publisher: James J. Dunn. 60 Fifth
Avenue, New York, N.Y. 10011. Editor: James W Michaels,
60 Fifth Avenue, New York, N.Y. 10011. Managing Editor:
Sheldon Zalaznick, 60 Fifth Avenue, New York, N.Y. 1001 1

7. Owner: Malcolm S. Forbes. 60 Fifth Avenue. New York,
N.Y 1001 1. Malcolm S. Forbes, Jr. 60 Fifth Avenue. New
York, N.Y. 10011. Christopher Forbes. 60 Fifth Avenue,
New York, N.Y. 1001 1.

8. Known bondholders, mortgagees, and other security
holders owning or holding 1 percent or more of total amount
of bonds, mortgages or other securities: None.

9. Not Applicable

10. Extent and Nature of Circulation:

Average

No.
Copies

Each

Issue
During

Pre-
ceding

12
months

Actual

No.
Copies
of Single

Issue
Published
Nearest
to Filing
Date

792,791 807.978

24,726
682.732

56.000
681,481

707,458 737,481

A. Total No. Copies Printed

(Net Press Run)

B. Paid Circulation

1 Sales through Dealers
and Carriers, Street
Vendors and Counter
Sales

2. Mail Subscriptions

C. Total Paid Circulation

(Sum of 10B1 and 10B2)

D. Free Distribution by Mail.

Carrier or Other Means,
Samples, Compli-
mentary, and Other
Free Copies

E. Total Distribution

(Sum of C and D)

F. Copies Not Distributed

1. Office Use. Left Over.
Unaccounted, Spoiled
After Printing

2. Returns From News
Agents

G. Total (Sum of E, Fl and 2)
11.1 certify that the statements made by me above are

correct and complete.

LEONARD H. YABLON
Executive Vice President

53,485

55,597

760.943 793,078

3,362

28,486
792,791

1.700

13.200
807,978

Drawing up a plan is one of the more
boring things about starting a business,
but its one of the most important.

THE BUSINESS
PLAN

By Thomas P. Murphy

This article, the seventh in a series,
is about the Business Plan, that
dull-as-dishwater, absolutely essen-
tial document you should assemble
before launching a new business.
Starting without a business plan is
like starting a cross-continent road
trip without a map. You will get
somewhere, but it might not be
where you intended to go.

To put this in context, the preced-
ing articles have taken you through
the scanning process — how to think
about yourself as an entrepreneur;
how to consider new business ideas;
how to buy a company; and how to
approach franchising. All this is
"dining-room-table" planning. Its
end product is the Business Plan.
It becomes a "Private-Placement
Memorandum" if you intend to ex-
pose your plan to very many people
in an effort to raise capital. If that is
the purpose, you should have it re-
viewed by a lawyer. He will keep
you this side of the SEC's limita-
tions on private offerings and make
his presence known by pointing out
risk factors: "There can be no assur-
ance this turkey will ever get off the
ground with his scheme to. . . ."

What goes into a business plan?
Everything that is important to the
business, and, hopefully, in fewer
than 40 pages.

A plan should begin with a simple

Thomas P. Murphy heads a venture capital
firm. Partnership Dankist, Stamford. Conn

declaratory sentence: "XYZ Corj
will manufacture very large seal
integrated devices . . . "; "PDQ pn
poses to enter America's fast-grow
ing convenience-food retailing lr
dustry by. . . ." That may seem or
vious, but I have labored throug
business plans that didn't reveal th
nature of the business for 15 pages-
when I got that far.

The next section, for my tast
anyway, ought to state the advar
tages your approach has in its indu!
try. If there is a history, whic
would be true if you were buying a
existing business, it should be abot
the fourth section of the Plan.

Logically, the next step is to d<
tail your plan for handling the ke
element in the business. If succes
depends on your ability to manufai
ture a product, then this sectio
ought to show how you propose t
do it. On the other hand, if it is
marketing-dependent business, th;
would go before manufacturing.

The marketing section, by th
way, is key. In my experience, moi
new enterprises manage to mak
the product they said they were g(
ing to make. But marketing is a kil
er. It is expensive, exasperatingl
unpredictable and, when you get t
the cash flow, very sensitive to tin
ing. An example of the latter:
friend was selling a remarkable ne'
product to city governments. H
failed, in projecting sales, to alio
for the long budgeting cycles citif
have and the fact that they are slo
•to pay their bills. Those oversigh
almost killed the business.

Since marketing is so importan
let me suggest some of its subse
trons: personnel, the physical facil
ty and how these relate to the sah
projections. You should show boi
the size of the total market ar
trends in it, talk about competitic
and suggest what share of the ma

260

FORBES, OCTOBER 11, L

3NEY a INVESTMENTS

u hope to get. There is more: a
iting plan includes pricing,
sales tactics (company sales-
agents, distributors, manufac-
' reps, etc.). Warranties and
e have to be covered and, if
tant, advertising and public
ms.

ie business involves a product,
l detailed section is needed on
t will be developed, manufac-

etc. Cost and volume num-
re needed. If key equipment or
naterials are involved, you
to make clear how you intend
them and when,
mr business plan is for outside
mption, a section will be
d on the management team —
hey are and how their experi-
elates to the business. Inves-
vill also want to know how
■ship of the business is divided
iow management intends to
^nsate itself. Modesty in com-
tion is my recommendation;
se to pay key executives small
;s supplemented with a piece

action. Investors love sweat

r.

3t business plans do not have a
chart — a series of boxes on
showing what needs to be
ind when. I urge you to do one.
: final sections of a business
ire the financials, and by far
ost important of these is cash
If the cash is negative, that
negative is the amount of fi-
ng you need. The first year
d be done by months and the
wo years by quarters,
ile it is heresy, I would skip
balance sheets and income
nents on a small startup that
't require outside financing.
; early stage, they don't tell
nuch. Only cash is critical;
you are out of that, you are
f business.

:re is an excellent book you
: find helpful that has a good
m on writing business plans. It
Front Financing by A. David
• (Ronald Press, $15.95).
:s all this sound wearisome
m? If it does, maybe you
d forget about starting your
business. If you find these
s boring, you probably would
running a business boring.
:ss may start with a brilliant
:pt, but its implementation is
usand niggling details. ■

THE COST OF
LIVING.

GIVE TO THE AMERICAN CANCER SOCIETY.

The IDS Tax-Free Money Fund

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that increases as your tax-bracket increases.

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'CM course, a portion may be subject to some slate and local taxes

Mail the Coupon or Call . . .

Toil-Free 1-800-IDS-IDEA

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IDS, IDS Tower, P.O. Box 369, Minneapolis, MN 55440

For more complete information, including management
fees and expenses, please write or call for a prospectus.
Read it carefully before you invest or send money.

_City_

.Telephone [_

I
I

- _

<M ■

_ ■

CO

J

iS, OCTOBER 11, 1982

Commodities

Gold normally trades at a discount to
platinum. Now the tables are turned. Can
traders make a buck based on this?

THE HIGH PRICED
SPREAD

MONEY & INVESTMENTS

By Stanley W. Angrist

The recent explosion in the prices of
gold and silver has brought out the
gold bugs among my readers. They
all want to know the same thing: Is
this the time to go back into the
precious metals? Longtime readers
of this column know that I am no
fan of gold and silver. As a rule, they
are commodities that go up in price
when the end of the world is at
hand. As a commodity trader who
has been at it for more years than I
care to think about, I always try to
look at things from an optimistic
point of view. Traders who don't
maintain such a viewpoint soon
find themselves looking for bridges
with low railings.

I believe that this runup in the
precious metals is simply a bear
market rally that will soon play it-
self out. While the international
banking system is certainly not in
great shape, I do not think it is going
to fail. And though this rally has a
great deal to do with the sad state of
many international banks and their
Third World clients, this condition
is not going to be enough to sustain
the rally much further.

Donald M. Selkin, a spread analyst
with Bachc Halsey Stuart Shields,
recently took a look at a spread that
has moved into a unique area. The
trade involves gold against plati-

Stanley W. Angrist is a commodity specula-
tor, consultant and longtime observer of the
commodity markets.

num — two precious metals with dif-
ferent demand characteristics. For
the past two years or so platinum has
been trading at a discount to gold.
Some traders view this as an aberra-
tion since platinum traditionally
trades at a premium to gold. A brief
look at three recent time periods
provides some insight into the forces
that move these two metals.

Following the explosion in oil
prices in 1973, the U.S. experienced
a severe recession in 1974 and 1975.
Particularly hard hit was the U.S.
auto industry. During this time,
platinum went to a discount to gold
for about a ten-month period, even-
tually sinking to a level $40 an
ounce under gold. Since platinum
has more industrial uses than gold,
particularly as a catalyst in emis-
sion control devices for autos, it is
not too surprising that it weakened
more than gold in an economic
downturn.

The precious metals' bull market
that started in the fall of 1979 and
went to the spring of 1980 saw plati-
num continually at a premium to
gold. This was due to strong eco-
nomic activity in general and a
healthy auto market in particular.
Platinum inventories ran down be-
cause of high industrial demand.
Speculative demand was also high
thanks to double-digit U.S. inflation
and a weak dollar. The gold market
peaked on Jan. 17, 1980 at $875 per
ounce, while platinum continued to
surge to new highs, not reaching its
alltime record price of $1,150 per
ounce until late in March. At that
time it held an astounding $400-
per-ounce premium over gold.

The bear market of 1981-82 was
characterized by record real interest
rates, a falling inflation rate, lower
oil prices, a strong dollar and a
worldwide recession. These factors
caused a flow of funds out of pre-

cious metals to interest-bearing i
struments. Platinum dropped und
gold in late 1980 and has remain
at a discount ever since. In eaa
summer the $20 discount doubl
and in late August exceeded $1
per ounce for the first time in hisi
ry (see chart).

This spread is worth trading
this level. Only a modest strcngl
ening in industrial demand wotj
have a tendency to narrow
spread. Therefore, I would consicj
buying platinum, while selling gc
if platinum is at least at a $11
discount to gold (basis the Ap
contracts). I would buy two cc
tracts of platinum for every contra
of gold I sold, as the former is on

The gold premium

The chart below shows the p rem
um of the April gold contract to tl
April platinum contract. T!
spread has never been so wide

Dollars per ounce

500

450

Gold-platinum spread {dollars per ounce)

150

I Mar. I Apr. I May I |une I July I Aug

50 ounces, while the latter is
ounces. Thus, a $1 change in
spread value will result in a S
gain or loss per spread.

You should be aware that
spread is a volatile one, and, th
fore, I would risk no more t
$1,000 from my entry point. I wc
look for a profit of at least $4,00(
each spread. The margin on
spread is the sum of both side
about $5,500 (exchange m
mums), while the round-turn c
mission is also the sum of li
sides, about $200. ■

26.'

FORBES, OCTOBER 1

■

ORPORATE
REPORT

:IAL FORBES ADVERTISING SERVICE FOR INVESTORS AND THE FINANCIAL COMMUNITY

N New York Stock Exchange A American Stock Exchange O Over-the-Counter P Pacific Stock Exchange

VER CORPORATION (ARIZONA) 0-V
M. SILVER CORP (CONTINENTAL) 0-V
JOINT NEWS RELEASE

\, B.C., Canada— September 13, 1982
RATIONS— ARIZONA U.S.A.

ver/gold prices recently advancing to and
ligher levels than was the case a few months
;nt to the sale in mid-August 1982, Arizona/
we scheduled further sales for the mid and
September 1982 of silver/gold produced from
iills Mining Properties located in Mohave
a, U.S.A.

silver/gold prices either advance or hold at
Arizona/Continental intend to increase the
>n of their mining operations (presently about
day) and to continue sales of product on a

ource of increased daily production is to be
cessing more underground ore from the G A R.

and the Hulda Mine (Continental).

OPERATIONS— TENNESSEE

)n program which has proved to be successful
tors in the area was recently commenced on a
r of the Companies' gas wells. If the test
le select wells are positive the program will be
ill other wells already connected to pipeline
h would create improved production this fall

OPERATIONS— TEXAS

sly reported Slope Energy, Inc. (Slope) the
■ providing very encouraging drilling results
lelays with completion/production. Slope re-
ced that progress is continuing towards re-
mpletion/production problems with respect to
3dy drilled with Slope as Operator,
the Companies' Representatives in the
Office are involved in negotiations with
articipation in new prospects whereby the
Trough Arizona Resources Texas Inc. will
tor.

:ORPORATION CONTINENTAL SILVER CORP.
Capitalization:

10.000.000 Shares Authorized 5.000,000 Shares

3.167 934 Shares Issued 2,545.086 Shares

hange'ARZ

Listed

Vancouver Stock Enchange/CVR
NASDAQ/CTl SF

iharles S Underhi 1 1 . Director, Arizona Silver
Continental Silver Corp., Suite 1140, 625
couver, B.C. Canada V6C 2T6 Phone: (604)
Michael A. Connor, Balfour Securities, 630
ite 2170, New York, N Y. 10111 (212) 489-

URCES LTD. O-V

\, BC, September 8, 1982 — The current surge
if gold has resulted in a decision by Cumo
. to triple immediately, its production at the
.ouanna Gold Mines Ltd. producer near Nakina

urces a Vancouver based natural resources
1 the Consolidated Louanna Gold Mine will be
hree shift operation, seven days per week It
-per-day mill on the property which has been
:e April 1982
at the mine have been running at the
ibility study rate of .3 ounces of gold per ton

Increased production capability should allow the oper-
ation to produce in excess of 4,000 tons per month and also
allow the operators to sell in excess of 1,200 ounces of gold
per month.

Experience has demonstrated that the Cumo controlled
mine can produce approximately 40 percent of its gold in a
bar form, thus yielding a far greater return than from the
concentrate.

The original feasibility study at the mine was based
upon 100 percent concentrate production. But. with the
addition of gravity concentrating equipment and melting
furnace, the new production method has been effective
in returning 40 percent in gold bar form. This has
resulted in considerable cost savings in handling
freight and smelting costs. Sixty percent is still shipped
in concentrate form to the Asarco smelter in Helena,
Montana.

Cumo Resources reports that approximately 12 percent of
its gold income is saved by producing bar gold.

Cumo Resources received 100 percent of the Consoli-
dated Louanna Gold Mine's revenue until it is fully paid
back for its total investment of approximately $4.6
million to put the property into production. At current
gold prices the capital should be returned over the next
twelve months. After that, Cumo reverts to a position
involving 25 percent free carried interest in the property
and assets.

Cumo Resources trades on the Vancouver Stock Exchange
in Canada and is listed on the NASDAQ system in the U.S. as
well as having been approved for trading in California . The
company has producing oil and gas properties in Utah and
New Mexico. It recently acquired Lougheed Resources Ltd. of
Vancouver, and through it, assumed management control of
NP Energy Corporation of Houston, Texas. A firm with gas
and oil production.

Consolidated Louanna Gold Mines trades on the Toronto
Stock Excfi3ng6

(Contact: Cumo Resources Ltd., (Suite 1106), 700 West
Pender St. Vancouver, B.C. Canada V6C 1G8. Phone: (604)
689-2025.

INPUT BUSINESS MACHINES INC. O

FREDERICK, MD„ August, 16, 1982— Input Business
Machines (OTC-IPUT) today reported revenues for its first six
months ended June 30, 1982 of $2,153,721 versus revenues
of $1,732,547 for the first half of 1981, a 24 percent
increase. Net loss was $185,177, or $.09 per share, versus
net income of $128,908, or $.09 per share, in the same
period of 1981.

Revenues for the second quarter jumped to $1,125,648,
29 percent above the $876,901 reported in last year's
second period. Net income for the second quarter was
$51,065, or $.03 per share versus net income of $34,751, or
$.02 per share, for the second quarter of 1981.

In announcing the results, Gary J. Murphy, president and
chief executive officer, said "Input sales continue to in-
crease. Higher expenses in research and development have
produced new products that should in the months ahead
contribute to new growth and profit."

Input Business Machines Inc., is one of the nation's
foremost suppliers of optical character recognition sys-
tems, which translate printed date into computer lan-
guage. Input's products are integrated into data pro-
cessing systems used by financial institutions, insur-
ance companies, credit card processors and other
related businesses.

For more information or a copy of the second quarter
interim report, contact: Gary J. Murphy, President & Chief
Executive Officer, Input Business Machines Inc., 257 E. 6th
St., Frederick, MD 21701 Phone. (301) 694-0600.

MARCH RESOURCES LTD. V
PRYME ENERGY RESOURCES LTD. V
INTERNATIONAL DAMASCUS RESOURCES LTD. V

Exploration agreement with Noranda

VANCOUVER, BC, CANADA, September 13, 1982— Three
Vancouver-based companies with interests in 451 claims in
the Hemlo Gold Camp of Northwestern Ontario today an-
nounced agreement in principle has been reached with
Noranda Mines Limited of Toronto covering exploration of
the property.

Subject to formal execution, the agreement requires
Noranda to spend a minimum of $500,000 to earn a 60%
interest in two blocks of 234 and 217 contiguous claims.
The three Vancouver companies can participate in further
exploration as to 40% of the cost or elect to have Noranda
meet all costs and revert to a 20% carried interest in the
properties.

An immediate start is planned on an intensive surface
exploration program covering 234 'north' block claims
shared 50% each by Pryme Energy Resources Ltd. (V-PYE)
and March Resources Ltd. (V-MHL) and a 217 claim 'south'
block owned 75% by Pryme Energy Resources Ltd. and 25%
by International Damascus Resources Ltd. (V-IDR).

Pryme President Anthony L. Agostino said the company is
highly encouraged with the potential participation by a
major mining company that has been active in the area for
more than 25 years.

He noted that Noranda's Geco Mining Division has a
5,000 ton per day mill just 35 miles away from the Hemlo
area.

The prospective agreement, contact for which originated
from Noranda, provides that company with its first major
participation in the Hemlo Camp.

Several significant deposits of gold bearing mineraliza-
tion have now been discovered in the area and more than 20
companies are involved in exploration programs.

The two claims groups covered under the Noranda
agreement extend along the geological contact zone to the
north-northeast and the south-southwest of the original
discovery.

For further information, contact March Resources Ltd. for
Anthony L. Agostino at (Suite 202) 595 Howe St., Vancouver,
B.C., Canada V6C 2T5 (604) 687-8867.

Corporate Report Updates appears
once a month in 1982. For added
editorial impact and relevance, it is
positioned in Forbes' popular section,
"Money and Investments."

For further information on Corporate
Report Updates call or write:

Sarah Madison

Corporate Report Updates

Forbes Inc.
60 Fifth Avenue
New York, NY 10011
Phone: (212) 620-2371

Forbes

Classified/ October

11, 1982

REAL ESTATE

REAL ESTATE

We'll Help Put Your Brand

on a Ranch or Farm Anywhere in the West

NEUBAUER HORSE RANCH: 275 Acre Horse Ranch near Denver, Colorado,

good improvements.
FRASER FARM: 399 Acre farm in the path of development, north of Denver.
STELBAR RANCHES: 15,500 acre ranch south of Walden, Colo. , runs 1800 cows

lots of water.

HORN RANCH: 1118 acre ranch on North Platte River near Walden, Colorado.
STAR RANCH: 23,480 acre Nebraska Sandhills Ranch, will run 2000 cows,
one of the best.

FUNK FARM: 320 acre farm near Platteville, Colo. , good horse or cattle operation
YAMPA VALLEY: 3440 ac of beautiful tree covered mountain land near Vail, Co.
ELBERT CO. RANCH: 4700 ac of open & tree covered grassland, S.E. of Denver
LEDDEN RANCH: 1920 acres combination ranch & farm in Nebraska,
good improvements.

For Information on these and other Farms & Ranches of all sizes write or call:

ORR LAND COMPANY

420 E. 58th Avenue, Suite 155, Denver, Colorado 80216 (303) 825-1765

CAPE COD, Massachusetts

Exquisite 3 + bedroom home on 3 .2
ac. with 400' frontage on Pleasant Bay.
Privacy, beautiful views, dock, hand-
somely decorated, flawless condition.
Brochure available. Exclusive.

Cotton

john cotton, jr. real estate
15 West Bay Rd. , OstervUle, MA 02655
(617)428-9115

ISLANDS — Uninhabited private islands on
or near intracoastal waterway — Georgia &
S. Carolina coast $175,000— $600,000.
TIMBERLANDS— GA. Ideal water,
temp. & soil conditions provide great timber
tracts. Excellent tax shelter. $925 per ac.
FARMLANDS & ORCHARDS— All
sizes and prices Farm 630 ac — $585,000.
335 ac. —$315,000.

WE WILL TAILOR A PROPERTY TO
MEET YOUR INVESTMENT NEEDS.
MYRIAD PROPERTIES Inc
404-321-1955
2712 Clairmont Rd. N.E.
Atlanta, GA 30329

REAL ESTATE/FOREIGN

RESORT-MARINA
COMPLEX

One of the largest & most beautiful
in Florida Keys. GOLF COURSE,
restaurants, fresh & salt-water pools
w/bar. Shops, 159-unit motel, 26
acres. $10,555,555.
NEW . . . FREE . . . FALL CAT-
ALOG! Top real estate values coast
to coast! Please specify type prop-
erty and location desired.

UNITED FARM AGENCY,

612-YW. 47th St.,
K.C., MO. 64112.
Ph. Toll-Free: 1-800-821-2599.

To Buy Property in England

Contact: Melinda Stebbins

England's Specialist in Property Search
City and Country

31 Sloane Court West,
London, SW3 4TE
Tel: 01-730-0119

COURSES/SEMINARS
TRAINING PROGRAMS

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SHARING

IS CARING

LAW STUDY THROUGH
CORRESPONDENCE

Registered Law School
Qualify for California Bar Exam.

Phone Toll Free 800-423-4530
Ca. residents phone 800-362-7052
SOUTHLAND UNIVERSITY
Dept. 2 IB 35 N. Craig Ave.
Pasadena, CA 91107

REAL ESTATE

. MONTANA
FLY FISHING RETREATS

Big Hole River — A unique home right
on the water with over 4 miles of Fish-
ing rights. This is a "one of a kind" sit-
uation— private, beautiful, accessible.
Blackfoot River — Over 3 miles of
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miles to Missoula — over 1,000 acres —
totally private — no improvements.
Shields River — Indescribably beauti-
ful mountain ranch (4,000 acres) at
very head of Shields Valley as river
leaves National Forest.
Contact exclusive agents for sellers:

HALL & HALL, INC.

P.O. Box 1924
Billings. MT 59103
(406) 252-2155
1-800-443-2781 Ext. P40FR

CAPITAL TO INVEST

FINANCIAL BROKERS

INCREASE YOUR BROKER FEES BY
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• TO OPEN ESCROWS

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• FOR PRINCIPLE AND OR INTEREST

• LETTERS OF CREDIT

• WE PROVIDE ADDITIONAL COLLATERAL

• COMPENSATING BALANCES FOR REAL
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• VENTURE CAPITAL & REAL ESTATE
$150,000 MINIMUM • BROKERS PROTECTED

First Guaranty Ltd.

567 San Nicolas. Newport Beach CA 92660

(714) 640-1633

FORBES BINDERS

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or binders

In red and gold
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Slipcase: $5.95;
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Send check with your name and
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COMPUTERS

10%

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E 1980, Marymac Industries.
Ed or Joe McManus

MISCELLANEOU
FOR SALE

GENUINE GEMSTONE!
JEWELRY

Free wholesale catalc
Satisfaction guarantee
Member Jewelers Board oi
Chamber of Commert
HOUSE OF ONYX
No. 1 MAIN ST.
GREENVILLE, KENTUCK
TOLL FREE SERVICE 1-801

COMPLETE LINE
INVESTMENT QUA
BRAZILIAN GEMS'

Direct from the Mine:
UNITED MINING CORPC
u.s. office:
235 6th Street
Pine City, Minn. 550
612-629-2537 1
Industria De Joias Padua
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FORBES
CLASSIFIE

FORBES CLASSIFIED is

in the first issue of eac
Advertising closing dat
month preceding date of

FORBES CLASSIFIED li

accepted at the discreti
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units of one inch (14 ag
for regular listings, and t
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tisements. Additional s
specified minimums is s
appropriate agate line ra1

FOR ADDITIONAL INFORl
WRITE OR CALL!

LINDA LORE
FORBES CLASS

60 Fifth Avenue/New York,
(212) 620-24*

in

Forbes

ECUTIVE GIFTS

BORATE TIES

TO ORDER

d to any other media,
wrate image on ties speaks
eloquently at a surprisingly
cost. Silks or polyester,
phone for brochure and
75 minimum.

>T CRAVATS INC.

ane.
, FL

900

6666St-Urbain.
Montreal, Canada
H2S 3H1
(514) 271-1112

iSS CONNECTIONS

\B BUSINESSMEN
HAVE MONEY
0 BUY & INVEST

p Finders Fees Paid
iders Inquiry Invited
ite Box A239 Forbes
60 Fifth Avenue
ew York. NY 10011

BUSINESS
CTS AND SERVICES

ING ABOUT A SMALL
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Classified/ October

11, 1982

PROFESSIONAL
SERVICES

MEXICO

THIS MONTH

NEWS DIGEST & COMMENTARY

Get the inside story
quickly and accurately.

What's happening, why and
what it means for your future.

MEXICO

THIS MONTH

For subscription information:

P.O. Box 1464
La Jolla, CA 92038

Tel: (714) 454-4504

BUSINESS OPPORTUNITIES

MAIL ORDER OPPORTUNITY

Start a profitable home business in
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— growing 50% faster than general retail
Nationally known authority will teach
you. No previous experience; no product
investment required. Work full or part
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opportunities, case histories, plus com-
plete details No obligation.

Mail Order Associates
Dept 530. Montvale, NJ 07645

CONSULTING OPPORTUNITIES

Learn how to become a successful
consultant in your own field.
Write for a free prospectus:

The Consultant's Library,
815 15th Street, N.W., Dept F,
Washington D.C. 20005.

WANTED TO BUY

BRAND NAME MFRS ONLY

Surplus & closeout in factory sealed
cases. Large quantities only. We pay
cash. Quote wholesale prices.

Richard V. Payne & Associates.
505 N. Lakeshore Dr., Chicago, IL 60611
(312) 828-0969

TRAVEL

Cruise beautiful French canals
on hotelboat1 Superb French
cuisine Relax on sundeck or cy-
cle alongside while floating
through Burgundy Visit pictur-
esque villages and chateaus In-
dividuals or charter group (max-
imum-12) Pans pickup HORI-
ZON 215 N. 75th, Belleville. IL
62223 800-851-3448

EXECUTIVE GIFTS

EXECUTIVE GIFTS

Ztampicsi Stall, £td.

THE EXECUTIVE COLLECTION
Hampton Hall Ltd., the leading manufacturer of corporate neckware, will
design a handsome He and scarf for your company, or school. Add to this a leather
bound wallet and a belt of the same motif and you have the Hampton Hall
executive collection. Custom designed tote bags and hats are also available. For
additional information and brochure, please call or write: (min order 150 units)
HAMPTON HALL LTD., 51 East 42nd St., N.Y., N.Y. 10017 (212) 687-6810 Depi. KB-10

BUSINESS OPPORTUNITIES

BUSINESS OPPORTUNITIES

Established businesses located
west of the Mississippi for sale by
owners. Many owner financed. All
price ranges available.
Call collect.

Construction & Contracting
Businesses
Printing Shops
Eating & Drinking
Establishments
Automotive Related Businesses

AFFILIATED BUSINESS
CONSULTANTS

Box 6339. Dept F, Co Spgs CO 80934
(303) 630-8188, Ext 14
No fee to buyer involved

HEWLETT-PACKARD • APPLE
ATARI - TEXAS INSTRUMENTS
COMMODORE calculators and
computers— Apple 48K + $1069—
DD w/controller $499— Disc 2 $449
•Commodore Vic 20 $197— Super
64K computer $595— "Atari 400-
16K $199- -Tl 99/4A $199— *TI 59
$104-PC 100C 149- 'Mattel Intel-
livision $1 79— Atari 800-48K $779
800-16K $699-HP 41CV
$238-HP41C $189. HP
computers— call for thousands of
items for sale at great prices.
"Special promotions — may in-
clude mfg. rebate plans— call or
write for info.

OSC, PO Box 74545, LA Cal
90004-800-421-8045 or 213-739-
1130 in California 800-252-2153

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Mr. Metz: (213) 856-0100

THE ROYAL SOCIETY OF MARINE
ARTISTS FIRST EXHIBIT IN AMERICA,

including paintings by Stobart. Gardner,
Cross, September 12-October 24.
Illustrated catalog. $7.00:
Dept. M,
Mystic Seaport Museum Stores
Mystic, CT 06355

MERCHANDISE FOR SALE

r HOME IMPORT

MAIL ORDER BUSINESS

Big earnings in profitable spare/full
time project Deal direct with over-
seas suppliers. Newest products at
fraction U.S. cost. Up to 500%
profit. No product investment.
Famous world trader starts you.
Write: Mellinger, Dept. R159A
Woodland Hills, CA 91367

PREMIUM SHOES

LOW PRICES!

*****

>es: CapitalistToor

one out of every 7 FORBES
subscribers is a millionaire

Now, you can order the
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men's shoes at low,
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from Hanover, a lead-
ing name in shoes
since 1899.
Known for quality,
jTf' Hanover's expanded
ine includes hun-
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both dress and casual, as well
as shirts, ties, accessories, and
women's shoes FREE Catalog
Send for free 32-page color catalog &
money-saving Introductory Offer.

MAIL TO: The Hanover Shoe, Inc.
Box 340, Dept 9235, Hanover, PA 17331

4

Forbes /Index

Index of companies covered in news stories and by the columnists in this issue.

AAI ■ 139

Affiliated Hospital Prods 140

Alcoa 190

American Broadcasting 40

American Express 40

American Heritage Life 233

American Motors 156

American Natural Resources 166

AT&T 218

American Tobacco 44

Apple Computer 214

Arco 226

Atari 214

Bamberger's 44

Bank Ambrosiano 258

Bank of New York 16, 190, 202

Barclays (U.K.) 124

Bata Shoe 78

Billings 235

Boardroom Consultants 220

Boeing 40

Bowen-McLaughlin-York 139

Braniff lntl 258

Brentano's 250

BATInds|U.K.| 43

Bunker Ramo Information Systems 212

Burger King 172

CARBO 177

CBS 28

Cablevision 40

Campbell-Mithun 25

Campbell Soup 114

Champion lntl 10

Chart House 46

Chi-Chi's 172

Chrysler 33

Citicorp 16, 124, 202

Classic 177

Congoleum 251

Continental Illinois 16

Control Data 192

Crocker Natl Bank 12

Damson Oil 236

Data General 1 18

Denny's 45

Detroit Stoker 140

Digital Equipment 122

Dome Petroleum 258

Donnkenny 250

Dow Jones & Co 214

Drexel Burnham Lambert 98

Dyco 148

Eastdil 96

E-Systems 139, 144

Evans Prods 106

Exxon 12, 196, 218, 226

Firestone Tire & Rubber 227

First Boston 251

Fleetwood Enterprises 130

Fonar 235

General Dynamics .- 40, 140, 156

GE 33, 108, 124, 200, 206, 238

GM 228

Genesco 78

Robert L. Gette 222

Getty Oil 40, 226

Gimbel Bros 40, 44

Gould 250

W.R. Grace 102

W W. Grainger 51

Grumman 40

Grupo Industrial Alfa iMexicol 152, 258

Gulf Oil 226

Gulf &. Western 40

Haley Assocs 222

Hambrccht & Quist 206

Hardee's 46

Harsco 139

Hearst 40

Hcidrick & Struggles 222

H.J. Heinz 112

Hewlett-Packard 12, 123

Hill Samuel (U.K.) 124

Houston Natural Gas 25

Imperial Group (U.K.) 44

Inco 190

Interco 78

IBM 122, 144, 196, 218, 228, 238

International Harvester 258

International Paper 10, 190

Investment Search 147

Jerrico 46

Juki Office Machine 228

Kellogg 114

Kohler 25

Korn/Ferry 222

Lawson Prods 51

Lionel 98

Lockheed 40, 129

Loews 43

Logicon 144

Lombard- Wall 258

Loral 139, 144

MCA 40

McDonald's 45, 172

McDonnell Douglas 40. 61,129

McDonough 78

McRae Inds 73

R.H. Macy 45

Manning is. Napier 16

Manufacturers Hanover 202

Manville 98

Marbel Assocs Ltd 10

Marriott 45

Marshall Field 43

Medical 21 25

Metropolitan Life 124

Mine Safety Appliances 207

Monarch Life Insurance 214

Monsanto 196

Mutual Benefit 218

National Mine Service 207

National Westminster |U.K.| 124

New Hampshire Ball Bearings 60

Nordeman Grimm 222

Norris Inds 250

Northrop 144

Northwest Bancorporation 16

Norton Simon 114

Ocenco 207

Octameron Press 222

Olivetti 206

Outlet 98

Pan Am 124, 227

Pantry Pride 96

Paraho 235

Paramount Pictures 40

Parker Hannifin 39

Payless Cashways 102

Paystaff 73

PepsiCo 172

Perillo Tours 227

Philip Morris

Phillips Petroleum

Pillsbury 4

Pioneer

Pittston

Pizza Hut

Pizza Time Theatre

Polygon DTN

Polygon Network

Ponderosa

Potlatch

Pratt is. Whitney

Primark

Provident Life I

Prudential Insurance 12

Ouotron Systems

Ralston Purina 4

Raytheon

Paul Revere

R.J. Reynolds

Rockwell lntl

Rolls-Royce (U.K.) <

Ronald Press "

San Diego Gas is. Electric

Sambo's

Scandia Down

Charles Schwab & Co

Shell Oil

Shoney's

Siemens A G |W Germany)

Societe des Bains de Mer et du Cercle

des Etrangers IMonaco)

Sony Corp of America

Stone-East Assocs

Storage Technology

Stratus Computer

Spencer Stuart & Assocs

Synapse ._

Sysco * m'

TRW

Taco Bell

Tandem

Teachers Insurance

Teledyne

Telemet America

Telerate Systems ,

Textron

Time Inc .-.

Tishman Realty is. Construction

Tokyo Juki ilapan) ,

Tosco J

Tucson Electric Power ,

20th Century-Fox ..J

Union Mutual

United Industrial

Universal Studios .|

Utah lntl ' ]

Vallen J

Wang Laboratories j

Warner Comm

Wellco Enterprises J

Wendy's „J

Westinghouse Electric 33,

Westvaco J

Weyerhaeuser J

Wheelabrator-Frye J

Wickes Cos J

Wilshire Oil -u,

Winnebago '

Woods Petroleum

Xerox

Do you know anybody
who is somebody in business
who does not read
Forbes Magazine?

Forbes:
Capitalist Tool

266

FORBES, OCTOBER 1

Flashbacks

he more things change "

is from past issues of Forbes

y years ago in Forbes

be issue of October 14, 1922)

ank book is my favorite reading,
ss. I do my work for the love of it
;e my heart is in it. But a bank
an be thrilling — the best literary
r in the world. Next to the Bible,
nk book is the world's greatest
rhe edition is too limited. Every
lould have his copy. . . . On ev-
ge there should be something
than on the page before. And
3ank book should have a happy
;: 'Continued in our next.' The
ook should be the foundation of
mily library. People open the

book too often and the bank
not often enough. The check
i too full of reading matter!"

— Entertainer Sir Harry Lauder

Dodrich QlLVERTOWN |
KJ Cord Tire

Goodrich tire ad

nonstration of the power of the
I' union in Williamson County,
i d the sympathy with men ac-
\ )f murder in the Herrin massacre
i a responsible community, was
at the Court House at Marion,
i en 35 defendants were arraigned
:ir bonds guaranteed by the offer
:ties worth in the aggregate $10
n. Eighty-six men, including
f Herrin's business community,
'd forward to offer bail."
now forgotten "Herrin massa-
i "Bloody Williamson County"
le 21-22, 1922 was an incredible
During a United Mine Workers'
one mine in this long-organized

southern Illinois area (known locally
as "Little Egypt") decided to remain
open by hiring guards and strike-
breakers and becoming an armed
camp. When a striker some distance
from the mine was killed by a bullet, a
thousand or so armed strikers, farmers
and other sympathizers — all bred to a
local tradition of violence — gathered
and poured fire into the mine until it
surrendered. Then several dozen de-
fenders were killed in cold blood, often
brutally, including the mine superin-
tendent and the operators of the
mine's machine guns. The National
Guard did not intervene partly be-
cause the local officials sympathized
with the strikers and did not request it,
and partly because the governor was
on trial for a $ 1 .5 million theft. No one
was ever convicted for the killings.

Fifty years ago

(October 15. 1932)

"Now that he is out, everybody is
taking a crack at Samuel Insull. It is
natural, it is inevitable that the thou-
sands who invested in Insull securities
which have lost value should feel bit-
ter. Unquestionably he resorted, when
pressure became severe, to financial
expediencies, especially in mter-com-
pany deals, which he would not have
countenanced under normal condi-
tions. Later facts may prove me wrong,
but I cannot believe Sam Insull was a
crook. Admittedly he was boorish,
high-handed, autocratic, sometimes
ruthless, often insulting. Admittedly
certain of his political activities
seemed questionable. . . . The indis-
putable fact remains, notwithstanding
whatever may be disclosed, that Sam
Insull was essentially an upbuilder."

"Things have not been going well

with Ford Motor Co. Time was when
Ford supplied one of every two cars
sold in the U.S. That day has passed.
Whereas Ford's sales in 1929 exceeded
1,310,000, registrations for the first
seven months of this year were only
154,260. Ford has been outsold by
Chevrolet in four of the last six years.
In three of the six Ford has lost mon-
ey. The return on his invested capital
for the last half-dozen years, notwith-
standing that this period included the
greatest boom in American history,
has been abnormally small."

"Passenger cars made to sell for $400
and less will be among the offerings of
1933. This seems well assured. There
will be at least two lines offered at this

low price and several more will hover
around the $450 mark. None of the
products to feature will be small in the
orthodox sense, for their wheelbases
as now projected will correspond
closely to that of the Model A Ford."

Twenty-five years ago

(October 15, 1957)

"American Exchange traders looked at
their tape one day last month and
blinked: A wide gap had suddenly
opened up on the usually sleepy stock
labelled GAP. The Great Atlantic &
Pacific Tea Co., in which only 1,400
shares had been traded during all of
August, had spurted from 1 75 to 1 90 on

A&P Chairman George L. Hartford

volume of 1,650 shares in a single day.

"What had A&P plungers all shook
up was not news of any great boon to
the giant (4, 100 stores) grocery chain's
already booming business (a net profit
last year of $42 million on sales of
$4.5 billion), but speculation over
what would happen to the family
block of 1 . 1 million voting shares now
that Chairman George Ludlum Hart-
ford had gone to his reward."

But A&P, then the U.S. grocery co-
lossus, never overcame its inbreeding.
Last year it lost money on sales of
only $7 billion, though consumer
prices had more than trebled since
1957. Now it ekes out a so-so exis-
tence under the control of Germany's
Tengelmann retail group.

"A Wall Street bank specialist at mid-
month took one look at the nine-
month earnings reports of Manhat-
tan's major commercial banks and
said: 'They never had it so good. Not
even in 1929 when call money
brought 12%. Today it's a safer and
cleaner business. They don't have to
play around with risky loans. . . .' "

OCTOBER 11, 1982

267

The ideal man bears the
accidents of life with
dignity and grace, making
the best of circumstances.
Aristotle

A determined soul will do
more with a rusty monkey
wrench than a loafer will
accomplish with all the
tools in a machine shop.
Rupert Hughes

There are no circumstances,
however unfortunate, that
clever people do not extract
some advantage from.
La Rochefoucauld

Men of mettle turn
disappointments into
helps, as the oyster
turns into pearls the
sand which annoys it.
Orison Swett Marden

Results are gained by
exploiting opportunities,
not by solving problems.
Peter Drucker

Failure is instructive. The
person who really thinks learns
quite as much from his failures
as from his successes.
John Dewey

The human condition is such
that pain and effort are not
just symptoms which can be
removed without changing life
itself; they are rather the
modes in which life itself,
together with the necessity
to which it is bound, makes
itself felt. For mortals,
the "easy life of the gods"
would be a lifeless life.
Hannah Arendt

It is well to treasure
the memories of past
misfortunes; they constitute
our bank of fortitude.
Eric Hoffer

Thoughts

on the Business of Life

Difficulties, like work, are
blessings in disguise Life
would become monotonous,
colorless, deadening without
them. Difficulties should
act as a tonic, spur us to
greater exertion, strengthen
our will power Study this
subject through to the
bottom and you will arrive
at this conclusion: Thank
God foi ■ difficulties'
B.C. Forbes

You may not realize it when it
happens, but a kick in the
teeth may be the best thing
in the world for you.
Walt Disney

Problems are opportunities
and there are a lot of
them around.
Arnold Glasow

Opportunity wears many
disguises, including trouble.
Frank Tyger

There is always an easy
solution to every human
problem — neat, plausible,
and wrong.
H.L. Mencken

Things refuse to be
mismanaged long.
Ralph Waldo Emerson

More than 3,000 "Thoughts," indexed by
author and subject, are available in a 574-
page book at $12.95. Send check and order
to: Forbes Inc., 60 Fifth Ave., New York, N.Y.
10011. Add appropriate sales tax on New
York State orders.

Within us all there are wells
of thought and dynamos of
energy which are not suspected
until emergencies arise.
Thomas I. Watson

Mistake, error, is the
discipline through which
we advance.

William Ellery Channing

Victories that are easy are
cheap. Those only are worth
having which come as the
result of hard fighting.
Henry Ward Beecher

A wise man will make
tools of what comes to hand.
Thomas Fuller

Misfortunes are like knives,
that either serve us or cut us,
as we grasp them, by the blade
or by the handle.
James Russell Lowell

A Text . . .

Rejoicing in hope;
patient in tribulation;
continuing instant
in prayer.
Romans 12:12

Sent in by Kenneth I. Boone, Bristol, C
What's your favorite text- The Forbes Si
book of Thoughts on the Business of Lj
presented to senders of texts used.

What is defeat? Nothing but
education; nothing but the
first step to something better.
Wendell Phillips

Blessed is the person who
sees the need, recognizes
the responsibility, and
actively becomes the answer.
William Arthur Ward

268

FORBES, OCTOBER

DEARBORN

Hyatt Regency is convenient
to Detroit Airport,
Ford World Headquarters.

HOUSTON

he very heart of exciting Houston
;alk to business through climate
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IOENIX

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Convention Center.

Fresh foods. . .a special
Touch of Hyatt. Hyatt chefs carefully
select only the freshest seasonal
vegetables and fruits when prepar-
ing their world-renowned cuisine.

There are many things that
reflect the Hyatt touch. You get a
special feeling from each one. They
are examples of style that other hotels
cannot match. Hyatt standards
ensure that you truly get your money's
worth.

Weekend rates are another
touch of Hyatt. For reservations at
109 Hyatt Hotels worldwide, call
your travel planner. Or phone
800 228 9000.

SAN FRANCISCO

Hyatt Regency soars
above the Embarcadero Center
business complex.

HYATT0HOTELS

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Xerox and IBM give you copies
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They just cost more.

When we say Xerox* and IBM* give you copies as good
5 the Minolta EP 300 we're being modest

Because 74% of consumers interviewed by Nationwide
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le EP 300 were clearly superior

So, while the Xerox and IBM certainly do bigger
)bs, they don't do better jobs than the Minolta EP 300
hen it comes to copy quality.

The EP 300 has Minolta's exclusive micro-toning system,
o its copies are extraordinarily crisp and clear. With blacker
lacks From top to bottom and
dge to edge. On virtually any paper

p to io x i4 Minolta EP300

There's also an electronic IO1*
oubleshooter to spot and prevent ^~t*'~ |"~

roblems. And a universal tray so you
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opier hardly larger than an office typewriter

If you'd like the test results, send us the coupon

If you'd like the name of your nearest
uthorized Minolta dealer, look under
ur trademark in the Yellow Pages Or
all toll-free 800-526-5256 In N I .
01-797-7808

The Minolta EP 300. The small copier

lat proves size isn't everything. IV /I I IV TA

he Minolta EP 300. MINvJLI A

t up to 10 times the price,
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1982 Minolta Corporation Product appearance and/or specifications subject to change without notice
eroxB and IBM* are registered trademarks ot Xerox Corporation and International
ismess Machines Corporation, respectively Prices are those in effect as of 7/1/82

025

□ Please send me the copy test results

□ I'd like more information. Please have my
local dealer contact me

Name-
Title—

Company,

Address

City

Zip

.State.

.Telephone-

Mail to Minolta Corporation. Business Equipment Division.
101 Williams Drive. Ramsey Nl 07446

BAT INDUSTRIES

Interim Report: Six Months to 30 June 1982

Group Results

Half years to

% change

(unaudited)

30.6.82

30.6.81

over

31.12.81

£ mi

llions

June 1981

Turnover

4768

4226

+ 13

5039

Trading; profit

~323

265

+ 22

369

Interest paid less received

31

28

+ 11

9

"292

237

+ 23

360

Share of associated com-

panies'profit before tax

34

32

+ 6

55

Profit before taxation

~326

269

+ 21

415

Taxation

134

124

+ 8

157

Profit after taxation

~192

145

+ 32

258

Minority interest

22

16

+ 37

24

Net profit attributable to

B.A.T Industries

170

129

+ 32

234

Dividends

The Directors declared, for payment on 16 November 1982,
an interim dividend out of the profit for the twelve months
to 31 December 1982 at the rate of 12. 5p per share on the
Ordinary Shares.

Transfers received in order by the Registrar of the Company
up to 18 October 1982 will be in time to be passed for payment
of the interim dividend.

As explained in the interim report issued in September
1981, the dividend pattern has been simplified to one of a single
interim and a final dividend with the declarations linked to
announcements of Group results. The following is a summary of
the interim dividends declared for the half years to 30 June 1982
and 1981.

1982 1981

Interim paid 1.7.81 6.5p
Interim paid 4.1.82 8. Op

Interim payable 16.11.82 12. 5p

12.5p 14. 5p

The final dividend will continue to be paid at the beginning
of July.

Exchange Rate Effects

The results of overseas subsidiaries have been translated into sterling
for the purpose of this report at rates of exchange ruling on 6 September
1982 ( the latest convenient date ), when sterling was at US $1,721 and
Dm4. 275. Comparative figures have been translated at rates ruling on
31 December 1981, and had the same exchange rates ruled on 6 September
1982 as at 31 December 1981, it is estimated that the figures would have
been translated to the following: Turnover, £4558 million; Trading profit,
£304 million; Net profit attributable to B.A.T Industries, £159 million.

Industrial Analysis

Half years to % change

30.6.82 30.6.81 over 31.12.81

Turnover £ millions June 1981

Tobacco 2696 2416 +12 2906

Retailing 1117 958 +17 1222

Paper 475 416 +14 415

Packaging & printing 255 233 + 9 259

Other trading activities 225 203 +11 237

4768

Trading profit

Tobacco

Retailing

Paper

Packaging & printing
Other trading activities

266
6
39
7

5

323

203
4226

205
15
26
8
11

265

+ 13

+ 30
-60
+ 50
-12

-55

+ 22

5039

264
57
21
12
15

"369

Sir Peter Macadam, Chairman,
comments:

"Our businesses in general have per-
formed well in difficult circumstances,
although improvement was not at the
same excellent rate as in 1981."

'The results for the first half of this
year reflect our ability to continue to
grow despite worldwide recession, with
turnover up by 13 per cent in sterling
terms, pretax profit up 21 per cent and
attributable profit by 32 per cent, when
compared with the same period last year."

'There was some decline in total
Group cigarette volume, but improve-
ments in margins in some major markets
contributed to a satisfactory increase in
tobacco profits."

'The US retail industry entered a
phase of harsh competition with much
higher promotional activity ... the hard
going has temporarily arrested BATUS
Retail's high rate of profit growth . . .
Retailing in the UK has continued to be
difficult but International Stores made a
modest profit in the first half of the year.'

"Appleton Papers in the USA per-
formed well . . . Wiggins Teape improved
its results in the UK. There were good
results from the carbonless copying
paper business in Europe."

'This is not any easy time to predict
the outcome for the year with any
precision. The second half of the year
will not show the growth in profit
reported in the first half but, subject to
any adverse changes in exchange rates,
I expect the year as a whole to demon-
strate a real advance on last year."

B A T Industries p. I.e. • Windsor House

50 Victoria Street • London SW1H ON L

SIGN A RYDER
TRUCK LEASE NOW
8EFORE TAX LAWS CHANGE
JANUARY 1,1983.

CONGRESS HAS AMENDED
THE 1981 TAX LAWS.
ACT NOW TO GET FULL
TAX ADVANTAGES.

The tax laws of 1981 affected
vestment tax credits, depreciation
id residuals. But you can still take
[vantage of the 1981 law's benefits
f signing a Ryder lease now and
ltting new Ryder trucks
service before
n. 1, 1983.

i

And if you act now you get trucks
at 1982 prices.

A RYDER FULL
SERVICE LEASE OFFERS
OTHER ADVANTAGES.

The efficiency of Ryder- leased
trucks reduces the cost of truck
operations, frees up capital and
management time. The cost of the
lease is a tax deduction and
since its an operating
lease, it improves
your financial
ratios.

RYDER DOESN'T
JUST KNOW TRUCKS.
WE KNOW TAXES.

Get together with a Ryder
transportation expert. He'll work
with you and determine if truck
leasing makes sense for you. If it
does, Ryder tax experts will work
with your financial people and
come up with the most attractive
tax structure.

GREATER EFFICIENCY,

COST SAVINGS
AND TAX ADVANTAGES.

A Ryder truck lease can give
you a more efficient transportation
system and tax advantages. Call
the nearest Ryder District Office
or mail the coupon now.

RYDER. TELL ME MORE ABOUT
HOW I CAN TAKE ADVANTAGE OF THE
TAX LAWS BEFORE THEY CHANGE

NAME/TITLE

COMPANY NAME

TYPE OF BUSINESS

CITY/STATE/ZIP

PHONE

R

MAIL TO: RYDER TRUCK RENTAL. INC
BOB CAMPBELL, EXEC. VP FINANCE
RO BOX 520816
MIAMI, FLORIDA 33152

RYDER TRUCK LEASING AHD RENTING

A SERVICE OF RYDER SYSTEM

Forbes

October 25, 1982
Volume 130,
Number 9

161 Cover Story.
Behind the flash and
glitter, signs of age.

39 Xerox "/here will be
no more shoes to drop

67 Taxing Matters A neat
trick' if you can do it

• 39 Companies:

Xerox

After a decade in the wilderness, is the Second
Coming at hand?

40 Companies:
Woolworth

A few good words for the bankers.

• 41 Drugs:

Disaster On The Fast Track?

It shouldn't be this way, but the problems of
Eli Lilly's onetime wonder drug Oraflcx prob-
ably will derail the FDA's new speeded-up
drug testing program.

'42 Marketing:

The Hottest Thing On Four Wheels

Sometimes simple things are the best.

43 The U.N.:

Rhetoric Meets Reality

Especially when it comes to pensions.

44 Egypt:

The Fulcrum

With all its horrors, Lebanon is a sideshow.
Now, as for centuries, Egypt decides peace or
war in the Middle East.

50 Companies:

DeKalb AgResearch Inc.

Tortoise and hare. DeKalb's the hare.

• 54 Companies:

Precision Castparts Corp.

Just wait, just wait.

60 Investments:
After The Fall

The last John Muir investors are finally get-
ting paid. They seem to be the lucky ones.

67 Taxing Matters:

Have It Your Way, McDonald's

Not bad: higher earnings, lower taxes.

75 The Flower Business:
"This Is A Sleeping Giant"

Over $3 billion at retail, just blooming.

80 Investment Banking:
The Curacao Connection

So far this year, U.S. corporations have bor-
rowed $ 1 1 billion in — that's right — the Neth-
erlands Antilles.

83 Labor:

A Victory — Sort Of

How the UAW "cracked" the Solid South.

86 Britain:

Small Is Beautiful

For the first time in decades, there is support
for small, growing companies in the U.K.

107 Profiles:
K.K. Amini

He landed in the U.S. with $2,900 in his
pocket. Now San Antonio's Amini family is
worth $120 million.

,111 Entrepreneurs:
What's A Nimslo?

A 3-D camera — and a venture capital coup.

114 Companies:
CDI Corp.

Engineering's Kelly boys.

116 Companies:

Fieldcrest Mills, Inc.

A new chairman hits the ground running.

123 Companies:
Banc One Corp.

Pioneering in electronic banking in reces-
sion-ravaged Ohio.

/ 125 Investments:

No Joy In Mudville

The big bull market brought naught but sor-
row to many at the CBOE.

126 Companies:
General Signal

Recession-proof no more. Is a move to high-
tech the answer?

130 The Up & Comers:
Data Switch

Service first, technology second, says Richard
Greene. So far, it's paid off. Also: Entrepre-
neurs Rob Thompson Jr. and Terry Dorman;
Ma Bell reconsiders; Aeronca Inc.

145 Companies:
Humana, Inc.

Batting .857 at a perennially hot number.

146 Banking:
Jockeying For Position

Many small-town bankers not only see the
handwriting on the wall, they're not trying to
erase it anymore.

153 The Numbers Game:

The Mess In Bank Accounting

How can the thrifts be saved if nobody can
agree on the accounting?

4

FORBES, OCTOBER 25, 1982

75 Marketing transforms
an old business

86 Britain A hopeful trend
for entrepreneurs

130 t he I p & Coma s
Mi l>es are beautiful, but
sometimes they don't last
forever

172 Poultry: Look out, Mr
Rancher.

156 The Money Men:
Ray Dalio

His outlook: gloomy, if not downright scary.

161 Cover Story:

The Cosmetics Industry

The paint-and-powder people are trying ever
harder and spending ever bigger, but the signs
of aging are unmistakable.

166 Photofinishing:

Not A Pretty Picture

Overexposure in a $2.5 billion business.

170 Companies:
Genuine Parts

The man who doesn't like surprises.

172 The Poultry Industry:
Here Come The Chickens

The nation's poultry processors have quietly
become sophisticated marketers.

189 Technology:
The Space Mirror

?4emo to NASA and the European Space
Agency: Don't forget the advantages of the
old in the rush to the new.

Faces Behind The Figures

194 Marvin Runyon,

Nissan Motor Manufacturing Co. U.S.A.
194 Thomas DiCecco,

Oxford Corp.

196 Howard and Melvin Miller,

Arrowhead Jewelry

196 Russell Meyer Jr.,
Cessna Aircraft

197 Stanley Stankiwicz,

Twelve Stone Flagons Ltd.

198 Personal Affairs:

New York's New Hotels

Coming to the Big Apple? Here are some
recent additions to the Manhattan skyline, all
prepared to cradle you in the lap of luxury.

210 Statistical Spotlight:
For Gamblers Only

Recalcitrant bonds, preferreds in arrears.

214 The Streetwalker:

Consumers Are Buying

But not what you might think. Also: What's
going on with the oils; What does Larry Tisch
know that Carl Lindner doesn't:

Money And
Investments

33

What's Ahead
For Business
34

The Forbes Index
205

The Forbes/
Wilshire 5000
Review

Columnists

223

Ben Weberman
224

Heinz H. Biel
226

Stanley W. Angrist
228

Thomas P. Murphy
230

Srully Blotnick
232

Ashby Bladen
234

David Dreman

if

Departments

Side Lines
10

Trends
16

Follow-Through
24

Readers Say
27

Fact and Comment
30

Other Comments
236

Editorial Index
237

Flashbacks
238

Thoughts

Photos:

6, 114, 194 right, Bill Kelly; 10, Wide World, 16, 107,
John Grossman, 39, Michael Abramson, 40, Bermc Cleff;

42, 156, 214, Jim Pozank; 44, Lcdru/Sygma;

45, Sahm Dohcsty/Liaison; 48, David Kenncrly/Liaison;

50, Richard Faverty, 59, lames Mason/Black Star;

60, 130, Armen Kachaturian, 75, Thomas Lea; 76, Fred DeVan;

80, lurgcn Schmitt/ Image Bank, 83, Spider Martin/Black Star;

95, Robin Laurence; 112, Terry Parke/Liaison;

116, Steve Liss/Liaison; 123, loc Travcr/Liaison;

126, 137, |oyce Ravid; 146, lim Caccavo; 145, Bill Strode/

Black Star, 161, 198, 199 202, 203, |oc McNally/Camera 5,

163 bottom, Sha'Ron Calm, 166, Ben Wcavcr/Liaison;

170, Bill Grimes/Black Star, 172, 177, 179, Steve Murray;

194 left, Dana Thomas, 197 top. Hank Young/Black Star;

197 bottom, Lynn |ohnson/Black Star

Illustrations:

43, 67, 70, 190, 192, Chas B Slackman
Diagram: 189, Boh Conrad

Cover:

Cover Photograph: |oc McNally/Camera 5

ForbesllSSN 001 5 69 14)ispuhlished biweekly by Forbes Inc., 60 Fifth
Ave., New York, NY 1001 1 . Second-class postage paid at New York,
N Y. and at additional mailing offices. Subscription $33 a year,
U S A. Postmaster: Send address changes to Forbes, 60 Fifth Ave ,
New York N Y. 10011 Copyright © 1982 Forbes Inc. Title is
protected through a trademark registration in the U S Patent Office

FORBES, OCTOBER 25, 1982

5

Forbes

Side Lines

Editor

Iames W. Michaels

Managing Editor

Sheldon Zalaznick

Assistant Managing Editors

lames Flanigan, Geoffrey Smith, Paul Sturm
Executive Editors: lames Cook, leffcrson Gngsby
Economics Editor: Ben Webtrman
Art Director: Everett Halvorscn

Senior Editors: Ruth M. Grucnberg, Howard Rudnitsky,

lohii A Conway, William G. Flanagan, Thomas O'DonnclI,

Stephen Kindel, Harold Scncker

Contributing Editors: Richard Phalon,

Clothicld Spencer, Norman Gall, Dcro A. Saunders

Associate Editors: lean A. Bnggs, Subrata N Chakravarty, Chnstinc

Miles, Donald E Zipperer, Carol E. Curtis, Richard Greene, Eamonn

Finglcten, Richard L. Stern, Betty Franklin. Barbara Ettorrc, lohn R

Dorfman. Pnscilla S Meyer, Howard Banks, Steve Kichen

Staff Writers: John A Byrne, Pamela Sherrid

Reporters: Steven Flax, William Hams, Thomas |affc,

Paul B Brown, leff Blyskal, Barbara Rudolph

Senior Reporter-Researchers: Alyssa A Lappen,

lonathan Greenberg, layne A Pearl. Paul Bornstein. Ion Schribcr

Reporter-Researchers: Mernll Vaughn, lay Gissen,

lanet Bamford, Laura Saunders, Robert McGough, Anne Field,

Laura Rohmann, Kevin McManus, Ellyn Spragins, Aaron Bernstein.

Robert Teitelman, fa II Andresky, Theodore Lowen

Washington Bureau: Icrry Flint, Manager, Allan Dodds Frank,

Dcsiree French

West Coast Bureau: lohn Mcrwin Manager, Kathleen K Wicgncr,
Michael Cieply, Ellen Paris

Southwestern Bureau: William Baldwin, Manager;
Tom Mack, Anne Bagamcry

Midwestern Bureau: Maurice Bamfather, Manager;
Lisa Gross

European Bureau: Lawrence Minard. Manager. Rosemarv Brady
Columnists: Heinz H Biel, Stanley W Angrist, Srully Blotnick,
Thomas P Murphy, Richard B Hoey, David Dreman, Ashby Bladen
Art Department: Roger Zapke, Ronda Kass. Associate Art Directors;
Robert Mansfield, Assistant Art Director; Nikki Frost,
Thca S. Wieselticr, Photo Editors; Hadas Siev, Photo Research;
Andrew Christie, Charts

Information Services: Robert M Sterenson, Manager;
Library: Dolores A Lataniotis. Chief; Clanta lones. Assistant,
Dominic Madormo, Debra Rapps, Susan Dietrich, Research;
Santiago Alvarado, Gloria Katz

Statistics. Donald E Popp, Editor; Maria M. Latorraca, Associate

Editor; Ann C Oliver, Assistant Editor; Edward Sakalian.

Melody Wagstaff, Diana L Hoadley

Copy Department: Marlenc Mandel, Deputy Chief,

lane Lashaw , Dolores Guilhot

Director of Production: lohn I Romeo;

Robert M. Rosengarten, Edward B Morgan. Peter Althoff,

loscph De Gray. Lucille Landi, Assistants

Advertising Production: Patricia Dcckelnn.k

Director of Photocomposition: lames Cianelh,

Karen Heulcr, Assistant; Mark Decker, lohnnie English, Arthur Pet;

Chairman and Editor-in-Chief

Malcolm S. Forbes

President and Deputy Editor-in-Chief

Malcolm S. Forbes |r.

Publisher

Iames | Dunn

Executive Vice President

Leonard H. Yablon

Vice President-Associate Publisher: Christopher Forbes

Vice President-Administration: Scott R Yablon

\ ice Proident-Finance: Seymour Fncd

Vice President-Controller: loci B Redler

Vice President-Treasurer: Leonard Greenberg

Director of Advertising: Stephen G. Nicoll

Directot of Corporate Communications:Wm Donald Garson

Director of Circulation: lohn M. Thornton

Director EDP: lerome Hoffman

Advertising Representatives:

New Yotk: Donald W MacDonald, Mgr.

George C. Clissold G. Croft Henry; Richard Calkins.

Ellen S. Dwcck. Icrfrcy M. Cunningham.

Christopher M. Andrews, Nick Carter;

Arnold 1 Prives. Director, Advertising Supplements;

Thomas G Petersen, Co-Dir. Adv. Supplements;

loan E. van Dicpen, Co-Dir. Adv. Supplements

lames W. LaCirignoIa, Dir. Int'l Adv.. The Americas, Asia, Pacific

Atlanta: Charles S Thorn lr. Mgr.

Chicago: lames H Mallon, Mgr.

William |. Powers |r., Robert W. Buckley |r.

Cleveland: lames B. Norton, Mgr.

Dallas: Fred H Wellington, Mgr.

Detroit: Don Dane, Mgr

Los Angeles: Craig E. Miller, Mgr.

San Francisco: Richard W. Reynolds, West Coast Mgr.

London: Peter M. Schoff. Dir lm'1 Adv

Corp. Report Updates: Sarah Madison

Classified: Linda Loren

Mgr. Subscription Service: T.M. York 1212-620-22431
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PAID CIRCULATION OVER ^00 000

FOUNDED W BY B.C. FORBES 11880-19541

Hopeful silence

The ongoing anguish in Leba-
non inevitably obscures other
realities in the Middle East.
Chief among them at the mo-
ment, in our view, is Egypt's
remarkable poise and relative
restraint as it picks its way,
carefully, carefully, through a
maze of potentially explosive
pressures — enduring calls of
Pan-Arabism, easy appeals of
Nasserite socialism, endemic
hostility toward Israel — to
maintain an "open door" to
Western capitalism.

A fresh demonstration of
the poise and restraint we
speak of occurred only last
month. After the slaughter of Forbes' FA-Ayouty and Flint

innocents in the Palestinian I

settlements of Shatila and Sabra, and despite the powerful surge in J
anti-American sentiment that followed, the reaction of Egypt's Presi- I
dent Hosni Mubarak was measured and, it would appear, effective. He
recalled his ambassador to Israel — a necessary gesture toward Arab
solidarity. But, no less important, he did nothing else of substance.

As it happened, ferry Flint, manager of our Washington bureau, and
Yassin El-Ayouty, our consultant on international affairs, were in
Cairo when news of the murders broke. Flint and El-Ayouty were
there reporting on the state of the Egyptian economy one year after J
Anwar Sadat's assassination, eight years after the initiation of the
"open door" policy Sadat promoted. President Mubarak's carefully '
calibrated response under pressure fitted in with other readings they
took of Egypt's ability, and willingness, to keep the door open. There is
a strong case to be made that, the headlines of the moment notwith-
standing, Egypt's economy is among the most important stories of the
Middle East. That's why Flint and El-Ayouty had journeyed there.
They found a full measure of intractable problems, but some hopeful
steps toward solving them. Their report is on page 44.

Heads he wins, tails he wins

Only weeks ago we talked with Loews Corp. Chairman Laurence
Tisch about investing (Forbes, Aug 2). He runs his S5 billion-a-year
congolomerate a bit like a personal portfolio, and Tisch's message to j
Forbes readers was straightforward: Buy bonds and you can't lose in
today's market.

Shortly after we went to press, Wall Street went wild. Since falling
interest rates precipitated much of that gain, Tisch's bond positions
paid off handsomely. But he was a major winner in the stock market
rally too: Shares in Loews Corp. went from a low of S88 to a recent
high SI 22. The Tisch family holds roughly 50% of the company — so I
that translates into a gain of about S300 million. The rich, as they say,
do get richer. Though Tisch isn't particularly eager to discuss current
developments at Loews, he may be plotting a new strategy there, too.
For a hint of what 's ahead, see page 218.

Managing Editor

6

FORBES OCTOBER 25, 1982

COMPARE FREE TRAVEL
PLANS AND YOU'LL
GO OUR WAY.

The number of round trips required for free travel, on Northwest
Orient, compared with other airlines' plans based on mileage.

OUR WAY THEIR WAY

5 Chicago-Detroit 107

5 Minneapolis/St. Paul-Chicago 75

5 Boston-Cleveland 45

3 Washington, D.C. -Portland 11

3 New York-Los Angeles 10

2 Dallas/Ft. Worth-Anchorage 7

2 Chicago-London 6

COMPARE OUR WAY: COMPARE OUR WAY:

ree domestic travel after
ve round trips — or less.
Minimum $100 each way.)

COMPARE OUR WAY:

|p mileage requirement,
forth west Orient's Free
light Plan II counts the
umber of flights — not the
umber of miles.

MINIMUM MILEAGE REQUIRED
FOR FREE TRAVEL

OUR WAY

2,350*

THEIR WAY

50,000

/ Equal to 2 trips \
[around the world/

'Based on five round trips between Chicago
and Detroit at a full Coach fare.

Free travel to Europe and
the Orient.

COMPARE OUR WAY:

Double credits on London
fligh ts. For tra vel origina ting
in the U.S.A. using an APEX
or higher fare.

COMPARE OUR WAY:

Your travel planner gets
free travel, too. No plan
with a mileage requirement
offers this benefit.

For all the details call your
travel agent, corporate
travel office, or any
Northwest Orient ticket
office.

OUR WAY: The fastest, easiest
way to earn free travel to 71
cities around the world.

■■HHHHHHI

^NORTHWEST ORIENT

THE WORLD IS GOING OUR g& WAY.

A man in searcl

Get it together— buckk

J

>f an honest C3X.

^aveled around the world looking
certain kind of car.
call it the honest car.
)nce, I would have started my
i in Europe. Because Europeans
□ face crowded roads and high
osts sooner than people in other
of the world.

But things have changed,
you also have to look in the U.S.,
t companies like Ford,
nd what is an honest car sup-
l to do? In a few words: It's a car
tarts, stops and steers.
>f course, this is a terrific
Lmplification.

Take the first point, starting.

small-engined cars have tended
cranky starters.

Drd has opted to meet the prob-
i certain models with electronic
e controls, multiple-port fuel
ion and stronger starters,
took time and money, but it was
sponsible way to go.
And then there's stopping.
)ing quickly, in a straight line,
he car under control, is the name
game here.

nd Ford products undergo exten-
ding while striving to improve
braking characteristics.

Ford gets a grip on it.
>rd cars are equipped with steel-
1 radial tires. But Ford doesn't
here. On certain models, tires and
is are "indexed!'

ince tires and wheels have a "high"
and a "low" point, these are marked,

so "low" and "high" can be matched
when tire and wheel are assembled.

A small point, but it is attention to
details like these that gives you a
rounder tire and wheel combination to
help ride quality.

And then there's steering.
In the past, many people were content
with cars that emphasized boulevard
ride, not handling.

I've been told that you could blame
this on a mythical Aunt Minnie. It was
said she didn't like cars that responded
quickly and accurately to driver input.

But if Aunt Minnie didn't like a
responsive car, what was she doing
tooling around in that little, quick-on-
the-trigger compact?

U.S. drivers like a quick-to-react car.

Not necessarily a sports car. But one that
feels like it's being driven by the driver,
not some disinterested third party.
An impressive change
in one company's cars.
It's a change in aerodynamics, in han-
dling, in quality. In what the engineers
call product integrity.

I think someday every good car com-
pany has got to have this new approach

FORD • MERCURY • LINCOLN • FORD TRUCKS

Trends

Call my lawyer!

Free legal service is catching on as a
fringe benefit in union contracts. Ear-
lier this year General Motors agreed
to set up an employer-paid fund to
provide such a fringe. Now Hyatt Le-
gal Services, a national chain of legal
offices, has signed to do the same
thing through the International Trust
of Legal Services, an employer-paid
arrangement created by the Sheet
Metal Workers and two trade associ-
ations. Initially, Hyatt will run the
plan for about 15,000 workers and
their families; by 1986 it's expected to
cover 100,000 families. "Judging by
what we've heard, this program is
wanted and needed by a large number
of locals," says the union president,
Edward Carlough. Founder Joel Hyatt
of the legal firm calls his plan "a mod-
el for the rest of the nation." Hyatt's
services will include wills, divorces,
real estate transactions, defense of
civil lawsuits and the like. In the 25
cities where Hyatt has offices, the ser-
vice will be exclusive (as an added
attraction these will be open nights
and Saturdays). Elsewhere, Hyatt will
provide a list of private law firms.

Flying low

The world's government-owned air-
lines rarely care about losing money —
they will be around $2 billion in the
red this year — and thus bailouts are
standard, except, it seems, for El Al,
Israel's national carrier. Its passenger
operations have been shut down since
early September, and (for now) every-
one says it will not reopen until some-
thing is done about its sad perfor-
mance. Its chairman says he will com-
pletely restructure the management

and trade union setup, in hopes of
ending the airline's plague of strikes.
(The latest: a petty dispute over com-
mission payments for cabin sfaff on
duty-free liquor and cigarettes.) El Al
(Hebrew for "to the skies") has lost
around $200 million over the last five
years ($32 million last year). With in-
flation at an annual rate of 1 30% , and a
mounting war bill, Israel can hardly
afford such luxuries. The outcome de-
pends on the survival of the Begin
government (if the Labor opposition
should return, the trade unions will
stand pat), and Begin's survival de-
pends, among other things, on two
small Orthodox parties that insist El
Al not fly on the Sabbath. (The matter
is bogged down in the courts.) If there
is no solution, El Al's managers say the
board will recommend that the gov-
ernment dissolve the line. Unlikely as
it may sound, they also say the Begin
government would agree to do so. The
airline could then emerge, phoenix-
like, perhaps with an injection of pri-
vate money.

Women behind the wheel

Women bought 40% of all new cars
last year, $35 billion worth, says the
Automotive Information Council, a
Detroit-based industry group, so auto-
makers want to change designs and
sales pitches to meet the market.
Ford, for example, had today's 44 mil-
lion working women in mind when it
set up test programs ten months ago
in San Diego and Dallas to educate
independent dealers on women's ex-
pectations. "We are trying to elimi-
nate the stereotype," says Marilyn
King, manager of contemporary mar-
keting at Ford. (Never call anyone
"honey" or "dear," dealers are

Edited by John A. Conway

warned, and don't ignore women in
jeans.) Carmakers are also redesigning
and relocating door handles, foot ped-
als, seats, scat belts, instruments and
controls, with women in mind. But
new features, though built for wom-
en, will not be for women only. Says
Ford's King, "Everything that women
need, men will appreciate." The only
hitch is the lead time in product plan-
ning. Engineers familiar with wom-
en's needs today won't build maior
changes into their cars until the 1986-
87 model year, King says.

Losers, weepers

The University of Minnesota has
earned the dubious distinction of
owing the largest legal fees ever as-
sessed against a college and the largest
ever awarded under the 1964 Civil
Rights Act's sex discrimination sec-
tion. A federal judge ordered the uni-
versity to pay two lawyers $2 million
for their work in a successful sex dis-
crimination suit. It has two years to
pay, at 11% interest. An associate
chemistry professor filed the suit in
1973, but settled in 1980 for $100,000
after the case was broadened to cover
all female employees who were dis-
criminated against. The judge said the
fees (three times the usual rates) were
justified by the case's difficulty, the
lawyers' good work and the long delay
in payment.

Dreams die hard

The single-income family has been
priced out of the housing market by
high interest rates and monthly pay-
ments. That is the grim conclusion of
a new survey by the Federal National
Mortgage Association (Fannie Mae),
which owns 1 of every 20 mortgages
in the country. But the dream is still
alive. "The vast majority of Ameri-
cans still intend to own their own
homes," says David Maxwell, chair-
man of Fannie Mae, "but they know it
won't be as easy as in the past."
(Among renters, Fannie Mae found
that fewer than half could afford to
buy a home.) Another survey, by the
business-backed Conference Board in
New York, canvassed 5,000 house-
holds and turned up only 2.1% plan-
ning to buy a home. Most of the
dreamers in this count said they
would prefer a fixed-rate, 30-year
mortgage, despite the expense and the
increasing rarity of such loans. Fannie
Mae's poll, done by Louis Harris,
found people willing to take new,

An FA Al airliner sits on the runway

At the moment, only the motto is flying.

10

FORBES, OCTOBER 25, 1982

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Trends

flexible mortgages if it saved money
or made buying easier. (On the bright
side, home prices were reckoned at
only 2.5% higher than a year ago.)

The second time around

Recycling of cans, at least of the alu-
minum variety, is gaining momen-
tum. Nearly 25 billion aluminum
cans — half the total manufactured
last year and 28% of all cans made —
were recycled in 1981, up 150% *rom
the year before, according to the Alu-
minum Association. The gain for its
cans has increased 1,800% in the last
decade, the association says, largely
because of industry promotions flog-
ging the fact that recycling uses only
5% of the energy needed to produce
new aluminum from ore. The picture
in steel — key ingredient of the "tin"
can — is not as bright. Nearly 40 bil-
lion tin cans were rolled out last year,
but only 3 billion were reclaimed.
Why? "Steel's scrap value is substan-
tially lower than aluminum's," ex-
plains a spokesman for the American
Iron & Steel Institute.

What price living?

Where should a wage earner live?
Union Bank of Switzerland, in its fifth
survey of prices and wages, found that
among the 47 cities it checked to see
how far take-home pay went toward
filling the larder, Geneva ranked first,
2% better than Zurich, the Swiss city
used as a base for the UBS index. Chi-

Where the food dollar
buys the most

Zurich=100

0 20 40
I I I

60

120

San Francisco

I I I

Los Angeles

Luxembourg

Geneva

I I I

Chicago

Zurich

I I I

New York

.1 I I

Toronto

I I I

Paris
~T—

i — r

Tokyo
I I

Dublin

cago, San Francisco and Los Angeles
ranked next, with New York, Mon-
treal and Oslo close behind. From
there it was downhill all the way to
Bombay, where a worker's net stood
at 8% of what the Zurichcr enjoyed.
San Francisco's working families ate
best, with purchasing power a full
20% higher than Zurich's; a Los An-
geles paycheck bought almost 9%
more than a Zuncher's; one in New
York 1.7% less. The Tokyo home-
maker was among the worst off in
setting the table (see chart). The bank
also took a measure of who made
what in which job. For school-
teachers, happiness was Geneva,
where they earned $33,400. Managers
(those with more than 100 employees)
were best off in Chicago, averaging
$55,200 a year. New York finished
first for electrical engineers ($40,300).
Not surprisingly, the Swiss led in
banking, with a Geneva teller gross-
ing a cool $28,200.

One-way trade traffic

The American trade deficit with Ja-
pan is nearing $20 billion this year,
says a new report by the Japan Eco-
nomic Institute, a Washington-based
agency funded by the Foreign Minis-
try of Japan. The gap was $15.8 billion
last year and $9.9 billion in 1980. Jap-
anese exports to the U.S. increased
9.4% during the first six months of
this year in spite of the recession, the
report says, while American exports
to Japan fell 3%. The institute blames
high interest rates in the U.S. for
weakening the yen and strengthening
the dollar. The result: Foreign imports
are cheaper in the U.S., and American
goods overseas more expensive — so
expensive in some cases that they
have been priced out of the foreign
markets.

The cosmopolitan campus

The foreign undergraduate population
on U.S. campuses could reach 500,000
(5% of the total) by 1985 and close to
10% by the year 2000, according to
the American Council on Education.
"In four-year institutions," the coun-
cil says, "the foreign-domestic ratio is
now a little over 1 in 30; by 1985 it
could be 1 in 15." At graduate schools
the trend is even more marked, with 1
in 8 scholars hailing from overseas. A
quarter of the engineering students
and 16% of those in business and
management classes are now foreign-
ers, the council adds. The engineer
total should remain level, but foreign
business students are expected to
reach 20% by 1990. The rush, accord-

14

FORBES, OCTOBER 25, 1982

ing to James Schmotter, assistant ad-
missions dean at Cornell's Graduate
School of Business and Public Admin-
istration, is "probably because our
universities are seen as the best place
in the world to study." Another factor
he cites is the rising level of incomes
in places like Hong Kong, Singapore,
Malaysia, Indonesia, Taiwan and Ko-
rea, where many foreign students
come from. "Most foreign students,"
Schmotter says, "are now footing
their own bills." Still, American
schools are in effect picking up part of
the tab because tuition covers only
about 75% of the full cost of an indi-
vidual student.

Uptight and up front

You don't have to be neurotic, but it
helps, concludes a report by Lee and
Alexandra Benham, a husband-and-
wife team at Washington University
of St. Louis, in an upcoming book.
After studying Professor Lee Robins'
data on 434 white males, the Ben-
hams found that salaries for those
classified as depressed, anxious or
compulsive ranged about 23% higher
than for their brethren who were diag-
nosed as normal. Most of the neuro-
tics were well-educated and many had
been reared by worried or pushy
mothers. Did the neuroses produce
the higher incomes or vice versa? The
Benhams (he is an economist, she a
mathematician) say it's hard to tell,
but they say they lean to the theory
that the neuroses came first.

The missing "R"

Distress signals are flashing once
again about a shortage of qualified
high school math teachers. Only 55%
of college graduates trained to teach
the subject are going into classrooms
and many now there are leaving for
better-paying jobs in industry, accord-
ing to the National Council of Teach-
ers of Mathematics. Bare handfuls of
students are prepping for math teach-
ing in big states like California and
Texas, the council says, even though
large numbers of jobs are going beg-
ging there. Ohio's Democratic Sena-
tor (and Presidential hopeful) John
Glenn has proposed low-interest
loans to collegians preparing to teach
mathematics or science (another field
crying for help), with a companion bill
designed to encourage companies to
give summer jobs to teachers in those
subjects. (Alabama and Kentucky al-
ready offer forgivable loans to stu-
dents who agree to teach math after
graduating.)

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CHANGE OF ADDRESS

If you are moving, let us know six weeks
before so we can keep Forbes coming. En-
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return it with a recent mailing label from
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FORBES, OCTOBER 25, 1982

IS

Follow-Through

Tacks.

We could print a long list of
golden promises about Ten-
nessee's climate for new busi-
ness. But we'd rather get
down to brass tacks, and
show you proof, not promises.
Like our central location and
our old-fashioned attitude
toward hard work. We want to
tempt you with a soothing
climate and sensational life-
style. More proof? We'll show
you a growing list of major
corporations that have come,
and stayed. So look at others'
promises and our proof.
Maybe it's time you got down
to brass tacks in Tennessee.
For more information, write
or call William H. Long, Ten-
nessee Department of Econo-
mic and Community Devel-
opment, Andrew Jackson
Bldg. , Box 320 , Nashville, TN
37219, 1-800-251-8594.

Tennessee

We get down to Brass Tacks.

Ride 'em, cowboy

A year ago, Tony Lama Co., the El
Paso bootmaker, was riding high on
the western craze started by high-
fashion designer Ralph Lauren and
stampeded by movies like Urban
Cowboy. "The only thing that can
hold us back is how many boots we
can make," Chief Executive V. (for
Verland) Eugene Hosey told Forbes

postponable. Also, part of it is because;
of the end of the trail for the Urban
Cowboy craze. Says Clamour magazine)
fashion editor Phyllis Posnick, "It)
really is finished." Many companies;
in the $5 billion-a-year western cloth
ing industry got caught when the John
Travolta fans turned to other fads. "A
lot of stores overbought," explains
Sylvia Kornelsen, executive director
of the Denver-based Western & En

A lineup of Tony Lama handmade boots

The fad may have run its course but the fashion is riding high.

(Nov. 9, 1981). Sales for the first half of
1981 had been $46 million, just shy of
the total for all of 1979; earnings were
up 105%. Hosey had such high hopes
that he had just opened a $3 million,
80,000-square-foot plant to specialize
in Lama's line of exotic skins (ostrich,
kangaroo, etc.), raising his total pro-
duction of handcrafted boots to 5,700
pairs a day from 4,400. "The reality is
that competition in boots is increas-
ing," Forbes cautioned, wondering
where all the demand for boots would
come from.

Boot sales for Lama have turned
down at the heel since then. Earnings
dropped by more than half, to $1.2
million for the second quarter of this
year, as demand reportedly dropped to
4,000 pairs a day. Last month, the
company cut its work force by 20%
and its inventory is still climbing, ac-
cording to analyst Craig Weichmann
at Memphis' Morgan, Keegan & Co.
(Hosey and other Lama brass weren't
talking.) "Orders usually pick up in
July and August, for the Christmas
season," Weichmann says. "It didn't
happen this year."

Part of the pinch on Lama is, of
course, the recession, when $1,000-
and-up fancy boots become readily

glish Manufacturers Association
"Then, all of a sudden, they didn't!
know what to do." She adds, however,(
that the overstock was chiefly flashy
cheaper items because the Urban Cou
boy son of the West was a flash in the
pan. "Basic, traditional Western at
tire," she says, "is as stable an Ameri
can fashion as there is." Echoes editoE
Posnick: "People will always buy,
boots." The western style boot ac
counts for an estimated $1.1 billion ini
retail sales annually and it's expected
to stay at that level. Lama was crowd
ed off some shelves by the flood of)
cheaper boots, but its hold on the
higher-priced market is unshaken.

Fashion experts aren't the only ones
who see the boot business staying ini
stride. The Tony Lama Co., 45% fam
ily owned, has been interested in find
ing'a buyer. Now they have one. New
York's Triton Group Ltd., the final
metamorphosis of the old Chase Man-
hattan Mortgage and Realty Trust,
has signed a letter of intent to buy
Tony Lama for $81 million or $35 a
share. Triton's 1981 gross income was
only $21 million (compared with La-
ma's $98 million in sales), and its
assets are only $55 million — but it
boasts a $150 million tax-loss carry-

16

FORBES, OCTOBER 25, 1982

It died of unnatural causes.

i—oo many factories in too
I many American cities
I are dying. Unnecessarily
M prematurely. They are
p products of an unproduc-
e economy. Our economy.
Not long ago, we all
Dught it just couldn't hap-
in here.

The fact is, however, that
3 United States has the
jhest percentage of obso-
e plants, the lowest per-
ntage of capital investment
id the lowest growth of pro-
bctivity of any major indus-
il country.

That didn't happen over-
ght, of course. This chart
lints out just how much,
d how rapidly, our econ-
ny has declined:

ANNUAL % INCREASE

roduclivity

|1959 '66

1973 -'80

i Comparing the early 60s
th the late 70's, America's
rerage annual growth in
Dductivity was lower by
b%. Allowing tor inflation,
al investment growth in
bnts, machinery and
puipment dropped by 74%.
No one can expect labor
i produce without tools. But
hce 1975, there's been a
eady decline in the amount
capital per worker in this
untry.

A close examination of our
economic illness points to
one major cause: An over-
dose of government.

Ever increasing levels of
government spending and
borrowing have squeezed
productive industry out of
credit markets.

Without credit, businesses
cannot buy the plant and
equipment they need to ex-
pand and increase their
productivity.

This chart shows the grow-
ing impact of government
borrowing as a percentage of

GNP and of total borrowing
over a thirty-year period:

AVERAGE FEDERAL GOVERNMENT
BORROWING ASA % OF

GNP

50 s 60's 70's '80

As the government ex-
panded its borrowing, private
industry cut back. To reverse

this trend, growth in govern-
ment spending must be
slowed in the years ahead.

Hidden in all these statis-
tics are countless human
losses: Lost jobs, lost in-
comes-lost dreams.

We're W.R. Grace & Co.,
a $61/2 billion company pro-
ducing chemicals, natural
resources and consumer
products. Even though our
interests are worldwide, we
consider the loss of any
American industry a death in
the family. And we believe we
all have a responsibility to
revive productivity at home. To
do that, we must invest.

Our own capital expendi-
tures through the years testify
to that belief. From 1965-
1975, our average annual
increase in capital expendi-
tures was 8.9%. From 1975-
1981, we averaged an 18.7%
increase per year.

And now by cutting taxes,
eliminating excess regulation
and by providing the impetus
to reduce the size of the fed-
eral government, President
Reagan has supplied us all
with new incentives. We must
make the most of them
immediately.

The drive and dreams that
first built America's factories
are needed now to unlock a
productive future for our nation.
And each of us holds the key.

GRADE

One step ahead
of a changing world.

WR Grace & Co. 1114 Avenue of the Americas. New York, N Y 10036

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Triton was impressed with Lama's
management, earnings and prospects,
according to Executive Vice President
William Sivitz. So impressed, it is
willing to take on about $36 million
in debt when and if the deal closes on
schedule next January. "This is a soft
year for Tony Lama," Sivitz says, "but
they will make more than enough to
pay off the debt we will take on to
acquire them." Triton also hopes to
help Lama expand its market east of
the Mississippi (it is now 80% in the
western half of the U.S., 40% in Texas
alone). The Triton executive says La^
ma's extra and now idle production
capacity "could be a real asset."

Selling off a jewel

In a generally gloomy future, one of (
Southern Pacific's bright spots has
been telecommunications, ForbesI
said Aug. 26. SP's Southern Pacific!
Communications Co. broke into thei
black last year with $34 million id
operating profit and piled another)
$37.1 million on top of that during the)
first half of 1982. True, SPCC is about)
half the size of MCI, number two ia
the field, but the $40 billion longi
distance business is growing by 10%i
to 15% a year. Then again, unlike)
MCI, SPCC has been moving into the
satellite business with two space sat-
ellites (at a cost of $200 million).

The prospects for SPCC, in factJ
were so rosy that Chairman Benjamin
F. Biaggini predicted that "by the end
of the decade SPCC could be produc-
ing half of Southern Pacific's rev
enues — and at last year's levels that
would be over $3 billion a year." The
trouble was that the railroad and the
telecommunications businesses each
required enormous capital, leaving
Biaggini with the painful choice ol
giving up one or the other. Otherwise
Forbes commented, "SP's slide ma^j
be irreversible." The chairman's reaC'
tion was an outraged denial.

This month GTE and Southern Pa-
cific announced that they had reachec
an agreement calling for GTE to ac
quire all the stock of SP's communi
cations and satellite subsidiaries foi
about $750 million. Said Biaggini
"The proposed sale puts this moderr
telecommunications company ir
good hands and provides Southern Pa
cific a generous return on its ongina
investment." SP's chairman hac
made his choice — telecommunica

tions was out.

FORBES, OCTOBER 25, 1982

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Banking in th
Mellon define

What executives need to know

Corporate financial officers dealing with banks
today face new and unfamiliar issues. The bank-
ing industry is in the midst of unprecedented
change , for reasons ranging from regulatory
reforms to revolutionary technologies and harsh
economic conditions. As a result, corporate
executives find themselves dealing with new
challenges such as these:

• The end of float:

Is cash management sunk?

• Bank automation :
What it means

• What businesses should banks be in?

• Relationship management:

New demands on the account officer

What strikes us at Mellon Bank is that execu-
tives aren't getting the information they need
about these new issues. No bank has taken
responsibility for offering simple, concise
definitions of the latest developments and
what they mean.

So we have decided to do just that.

In a series of advertisements in this public
and others, over the months to come, MeL
going to define some of the most importa
banking issues of the 1980s. Issues like tl"
we've listed— and other important new is:
as they arise. We won't be selling our proc
or our point of view, but laying out the fae
objectively, so that financial officers can f
their own opinions.

Why Mellon is taking this initiative

We feel that it's appropriate for us to do tl
because Mellon is one of the handful of b<
that are defining the future of banking. It
no exaggeration to say that we helped ma
banking in this country what it is today. (
roots run more than a century deep, throi
booms and panics, national triumphs and c
and profound economic changes.

Even before Judge Thomas Mellon establi
his bank on Pittsburgh's Smithfield Stree
in 1869, the Mellon name was associated v
enterprise and financial stability. One of t
bank's first customers was a young bookke
named Henry Clay Frick, who began to b
an industrial empire on a $10,000 loan froi
Judge Mellon.

SOs:

sey issues

ct, the early history of Mellon Bank
ndes with the birth of Industrial America
e period when people of vision, many
em supported by our bank, laid the
dations of some of the country's great
•prises.

j we're prepared for the '80s

Dn Bank has become one of the largest
wealthiest financial institutions in the
try. Consider these facts :

mericas 14,000 banks, we rank 15th in
:s.

balance sheet is one of the strongest, with
everage, liquidity, and a strong capital
. This not only means security for our
cholders and customers — it means we are
positioned to increase our earnings and
nd into new markets.

If you're surprised to learn these facts about
Mellon, it's because we've traditionally kept a
low profile. Many business people aren't aware
that we helped start the computer revolution
almost thirty years ago, when we became one
of the first banks in America with its own
computer. Tbday we're recognized as a leader
in computer technology, and as an innovator in
applying that technology to cash management
systems for major corporations.

Whatever the future of banking holds, we're
ready for it. We spend a great deal of effort on
examining and defining the financial issues of
the future. Now we want to share some of our
thoughts with you.

Mellon Bank and Mellon Financial Services,
which provides consumer and commercial
financing, leasing, and mortgage banking, are
subsidiaries of Mellon National Corporation.

e long since outgrown our traditional
tdaries. Recently, Atlanta, Boston, Miami
Ibronto joined the list of cities worldwide
Mellon representation.

Mellon Bank

One of the banks that define banking

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J

Out of toon?

Sir: You leveled unjustified charges
against my attitude toward some am-
bassadorial appointments made'under
this Administration (Fact and Com-
ment, Sept 13).

People serving as our ambassadors
abroad should have demonstrated be-
fore their appointment their qualifica-
tions to serve. Many of the appointees
have not distinguished themselves in
private life, many are relatively un-
known and many simply do not have
the qualifications.

We can ill afford to have inad-
equately qualified personnel serving
us abroad — whether they come from
the career ranks or from the outside. If
this is "nasty vilification of our coun-
try's present ambassadors" — as you
put it in your editorial — so be it.
— Malcolm Toon
Marquette I 'niversity
Milwaukee, Wis.

Sir: Those of us who were singled out
for criticism by Malcolm Toon much
appreciate your support.

—John J. Louis Jr.
Ambassador,
U.S. Embass)'
London

Sir: Those of us whom the President
appointed take our positions very se-
riously and work very hard at creating
and maintaining good relationships
between the U.S. and the countries to
which we have been sent.
— Maxwell M. Rabb
Ambassador,
U.S. Embassy
Rome

Sir: I understand from my career
friends in the State Department that
Toon is given to bizarre diversions, so
I didn't bother to skewer him.

— Evan G. Galbraith
Ambassador,
U.S. Embassy
Paris

More on The Forbes 400

Sir: My financial position has not
been correctly reported by Forbes.
And it brings me no pleasure to be on
your list.

— Philip F. Anschutz
Denver, Colo.

Sir: On target in describing what I
have in the world's goods. Most of my

24

estate goes to charity. A great, con-
structive job. Keep up the good work.

— Nathan Cwnmings
New York, N Y.

Sir: You may note the absence of a
terse derogatory characterization of
you. My repertoire is ample, but you
are unworthy of all.

— Giles W. Mead
Napa, Calif

Sir: I enjoyed The Forbes Four Hun-
dred. It was fun!

— Norman Robert
President,
Inc. Magazine
High Technology
Technology Illustrated
Boston, Mass.

Sir: You use the word "enormity" to
describe the task of compiling The
Forbes Four Hundred. Enormity
means "monstrous evil," not mon-
strous size or difficulty.
— Harry Chernoff
Arlington, Va

You didn't read far enough in the dic-
tionary re "enormity." Webster's defini-
tion includes "3) the quality or state of
being huge, immensity, " — MSF

Sir: The Forbes Four Hundred; The
Forbes 500s; The Fortune 500; The
Indy 500 (what?); billion-dollar corpo-
rations; people who eat and sleep just
like me who have over 100 million
bucks; some over a billion!

I wonder if they, or you, can possi-
bly understand the queasy feeling in
someone who has withdrawn his last
thousand-dollar CD prematurely, and
right afterward cashed in a Keogh that
was only two years old to meet the
mortgage, car payment, insurance and
taxes. Trying to be a Capitalistic Re-
publican Entrepreneur is tough when
you haven't had a contract for two
months and the IRS is continually on
your back.
— Richard J. Agresti
President (and housecleaner),
Sheltered Harbor Standard';, Inc.
Copiague, N.Y.

Sir: As a psychologist, I am all for
senior citizens keeping active, but I
am amazed that with all Bob Hope's
resources he can't find anything more
interesting and creative to do than
continuously traveling around the
country giving comedy performances.
It appears to be very obsessive-com-
pulsive behavior. He must continual-

FORBES, OCTOBER 25, 1982

ly exhibit and receive love and admi-
ration. I offer my psychotherapeutic
services to help him get over this neu-
rotic need.

While this offer is made altruisti-
cally, it has crossed my mind that he
could pay a fee slightly more than I
am accustomed to.
— Ed J. Gunderson, MA.
Milwaukee, Wis.

Sir: Your profile of Donald L. Bren
mistakenly states he is the son of
Claire Trevor. Mr. Bren is the son of
my wife, Mrs. Earle M. (Marion) Jor-
gensen, and her ex-husband, Milton
Bren, now deceased. Donald L. Bren is
the stepson of Claire Trevor, widow of
Milton Bren.
— Earle M. Jorgemen
Chairman,

Earle M. Jorgemen Co.
Los Angeles, Calif.

How's that again''' — Ed.

Clan-destine

Sir: Thought you might like to know
what members of the English Forbes
clan are up to these days.

This snapshot was taken off Fleet
Street in London recently.
—Jack Fletcher
San Diego, Calif.

No Oscar here

Sir: I hope John Rutledge (Other Com-
ments, Sept. 27) knows more about eco-
nomics than motion pictures. The
movie he was referring to was Rebel
Without a Cause, not "Rebel Without a
Chevy." James Dean's opponent in
the "chicken" game was not Sal
Mineo; it was Dean's opponent, not
Dean, who went over the cliff; and he
did so because his jacket cuff, not
pants cuff, got caught on the door
handle, not brake pedal.
— Ted Pauls
Baltimore, Md.

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Fact and Comment

By Malcolm S. Forbes, Editor-in-Chief

FLAT RATE TAX MIRAGE

Those who in growing numbers are urging a flat-rate return for a simplified tax form, would have to be over the

income tax remind me of desert travelers, dying of thirst, bodies of the beneficiaries. It's as unlikely as a snowball's

who keep seeing oases on the distant horizon. They envi- survival in the Sahara.

sion that, with a flat-rate tax across the board, all the And how long do you suppose, if there were a flat tax, it

deductions, all the special cases, all the complications of would stay flat for higher income levels? Do you think

our income tax forms would be done away with. that it would take more than one congressional session

Fortunately, a flat tax is as likely of passage as, unfortu- later before those earning over, say, $25,000 a year would

nately, the federal budget is likely of b